Cash convertor pay day loan £120 establishment fee, is it legal?

[dizzyblonde1966]

I recently found out to my dismay that my son had taken out a payday loan from cash convertors,

The loan has now been paid back in full, obviously much more than he had borrowed,

his initial loan was for £350, but £120 was added for "establishment fee"

 

This took his loan upto £470, so he was already £120 worse off before he even left the shop, let alone the rip off interest he had to pay on top.

 

Anyway, my sons stupidty aside, is this establishment fee which was added to the loan legal, ? how can they get away with adding almost a third to the loan before he had even left the shop?

Any help much appreciated

[renegadeimp]

What do you mean "establishment fee"?

[citizenB]

This is what they say on their website..

 

Loan Costs

 

With every loan, whether it's from Cash Converters, a Building Society or a Bank, there is a cost involved in providing the loan. The costs relate to expenses such as staff salaries, building rent, hardware such as computers and many other things that simply cost money. We often refer to this as the cost to establish or set up the loan.

 

When you take out a mortgage on a home, the costs relating to the establishment of the loan are spread out over the term of the loan - often several years or decades. For a large loan like a mortgage, the cost to establish the loan is relatively small compared to the size of the loan. So over this long loan term and for a large loan amount, you hardly notice what this original cost to establish the loan actually is.

 

 

It's almost the exact opposite of the situation with a Cash Converters small amount short term loan. At Cash Converters, the loans are small and repaid over a shorter term so the cost to establish the short term loan is large relative to the loan size. Also the cost to establish the loan needs to be recovered in a much shorter period of time.

 

There is much debate about this point. Those who criticise short term loans try to compare the cost in a common way; however it is difficult to compare a large loan paid back over a long period of time to a small cash advance loan paid back over a short period of time. This is why the Annualised Percentage Rate (APR) has little value. Just as a person wouldn't take out a Cash Converters short term cash advance to buy a house, they wouldn't take out a mortgage to fix a car!

[dizzyblonde1966]

What do you mean "establishment fee"?

 

I have the paperwork here in front of me,he took it out at a cash converters on our local high street

Its go all the details, ie loan amount of £350 interest rate of 150% ,

and frequency/date of payments etc

Also has establishment fee of £120 listed , my son has no idea what its for, and says he was unaware of it until I pointed it out to him, the first figure on the loan repayment sheet says £470 owing , ie the £350 plus the £120 "establishment fee "

Thanks

[citizenB]

Did you read post # 3, dizzy, whether or not it is legal or acceptable, I dont know. I will ask others on the site team.

[dizzyblonde1966]

This is what they say on their website..

 

Thanks,

Would they have to tell him this in advance, and is there any guidelines/regulations they have to follow, ?

surely each shop cant just pluck a figure from thin air and add it to the already sky high charges,

[citizenB]

Thanks,

Would they have to tell him this in advance, and is there any guidelines/regulations they have to follow, ?

surely each shop cant just pluck a figure from thin air and add it to the already sky high charges,

 

If the loan was £350.00 then they have charged 34.28% for setting the loan up ?

 

All their blather about mortgage companies charging a fee, I am damn sure that they dont charge 34% of the loan ?

 

I would think yes, they should have told him that they were charging him an up front fee as well as their shameful interest charges - one would think they made sufficient out of those to pay for their operating costs ?

[renegadeimp]

Establishment fee my btm . Surely thats taken into account with the extortionate interest and various fee's.

[dizzyblonde1966]

Thanks guys,

Thats what im thinking,

They made enough out of the loan repayments,£120 or as citizen B points out 34% on top as a so called establishment fee is way out of proportion

Any suggestions on where to go from here,

 

Am I right in thinking cash converters have a representative on here, ?

[citizenB]

No, we do not have a CC rep on CAG. I have flagged your thread for others on the site team. I am sure someone will be able to advise what you can do, if indeed anything.