Skint students seek alternatives

Interview feature

By Virginia Newman and Laura MacKenzie

With some students still waiting for their student loans, Leeds Student met with Oliver Holt of Toothfairy Finance, a new kind of loan company offering four-week or “bridging” loans. We were given access to the Toothfairy loan system, processes and communications to help us better understand what was on offer.  With students vulnerable to financial difficulties, we asked Mr Holt whether he thought it was appropriate for his company to be actively seeking them out as customers.

Leeds Student: Explain why your product is designed for students.
Oliver Holt: We offer a short term bridging loan product, specifically designed for students, to help with temporary short falls of cash, which usually occur when waiting for student loan or parental contribution to come through. This is available credited to your account in 10 minutes, online or by text.

LS: Why do you think that Chris Tapp from debt charity Credit Action advised students not to touch Toothfairy with a barge pole?
OH: This surprises us. We provide a two to four week bridging facility which is massively cheaper than unauthorised borrowing from a high street bank.  We identified this as a need and created a special product that we believe is well suited to this student need.

LS: You say this is a product needed by students. Students, however, don’t have full time jobs. Why do you believe short-term loans to be appropriate for people with irregular incomes?
OH: A bridging loan tides you over from when your funds go out to when your next income comes in. Student loans only come through every quarter and therefore if the student has a shortfall, this helps bridge that gap without incurring the penalty charges levied by say the high street banks. And that is the point of this loan. As a bridging loan, it is a short-term solution -two to four weeks, that’s it.

LS: But do you appreciate that not all students are able to get part-time jobs or have parents who contribute, further they are not financially aware. Is it not irresponsible to lend to those students?
OH: This is a convenient and transparent product to bridge a funding gap, be that student loan, parents or wage cheques. Students are the best and the brightest of their generation. They are the most educated; they are the most responsible. They research dissertations, what university to go to, what course to do, a wide variety of things. Students are aware, when taking out our loans, of the terms and conditions that are associated with that, and competent to make a decision as to what best meets their needs. We pride ourselves on the clarity and transparency of our pricing. Unlike a high street bank, we will not charge you £15 to £20 for a reminder letter / email, unlike some high street banks we will not charge you £5 a day if you are overdrawn for unauthorised borrowing. The premise on which the company was built was clear and based on transparent pricing and using new technology to deliver this quickly and conveniently.

LS: The problem seems to lie when students take out these loans with you and their student loans don’t come in time to enable them to make the repayments.
OH: We recognise the problem this has caused students and have allowed extra extensions on their loans, not taken legal proceedings nor put marks on credit reports in these cases. You cannot hold us responsible for the late payments of student loans but we do understand. Students will have a cash requirement during this short fall. There are a number of ways for a student to bridge that: a job, parental help or third-party borrowing. If they are already maxed out at the bank then it becomes very difficult, expensive and dangerous to borrow any more from them. We’re one of a number of ways of filling that gap. They can go to their university’s emergency fund or negotiate with the bank, but all of these things take time. They can apply to us which is quick and easy. And the key thing here is about it being transparent. You know what you are getting yourself into, no hidden charges, transaction charges or arrangement fees – one simple headline figure.

LS: What percentage of your customers are students?
OH: The vast majority are. It is a student product.

LS: If you had a son or daughter at university, would you feel comfortable with them taking out a loan from a company such as yours.
OH: Yes, for a brief period. For a brief period it makes economic sense. In the long term is it expensive. Imagine if you did unauthorised borrowing from a high street bank. You would receive a letter from the bank that would cost about £20 and that is before you have even started. You will then, depending on the bank, get charged £5 per day for unauthorised borrowing. Furthermore, they will register a mark on your credit report as someone who borrows and had failed to repaid, which can last six years affecting future employment, borrowing etc. If you come to us then you will know exactly what you are paying, and be constantly reminded how much you owe and when you have got to pay; to help you keep ontop and manage your debt, all completely free. By way of example, when you take out the loan you immediately get an email and an SMS telling you the loan has arrived, then the day before you are due to repay you get another email and SMS automatically reminding you, and then if you miss your payment you get another email and SMS telling you not to forget to pay it and when it is due and so on. So you get a constant stream of reminder emails and messages to keep you in control.

LS: So anyone who says they haven’t received reminders or haven’t been able to contact you isn’t telling the truth?
OH: Yes, as i have shown you, it is simply not possible. The lady on the television would have had to have taken the loan out for 67 weeks, been 33 times overdrawn and received over 70 automated correspondences.

LS: Are you suggesting that she was lying?
OH: Yes. There is no ambiguity over this.

LS: What is your process for vetting loan applicants?
OH: As i have shown you, we perform very detailed credit checks using three sources. It all flows automatically through the system. It is called ‘scrubbing’, where you compare a person’s details against the profile that you are looking for. Fully automated this happens sub-second. We have to loan responsibly as we have to recover the money. Unlike the high street banks we are not subsidised by the tax-payer!

LS: But a credit check doesn’t take into account whether or not a student has a part-time job or whether or not their parents help them out financially.
OH: No, so we have to be even more careful and look at their history e.g. mobile phones, insurance, credit card etc. This is designed as a quick and automated service based on sophisticated credit profiling.

LS: Why is it in your interest to specifically target students when they are in a more vulnerable financial situation than other groups in society?
OH: Because students have this need, we are catering for that need. We are confident that Students will repay as they are a responsible and educated customer. Don’t you think it is slightly insulting to students to say they cannot understand the options available to them and the simple pricing of this product?

LS: But why are the interest rates so high if you are catering for a student ‘need’?
OH: Good question. If you go online for a credit check this will cost you £15 before you start. Of course we don’t pay that rate, because we do thousands of these, but to loan responsibly we still have to credit check all our applicants which costs money. We have to administer all the funding, emails and SMSs which costs money and we do have to make a little profit as well. We are a commercial organisation and we are not subsidised by the tax-payer.

LS: Can you tell us how much profit you make seeing as the interest rate is so high?
OH: As a start-up we are still recovering the investment in our systems which make this possible.

LS: What percentage of your customers are unable to repay their loans?
OH: The percentage of ‘bad debt’ is extremely low. We’re talking easily less than 10 per cent, because people understand what they are borrowing and pay it back. This is a useful service. There are thousands of people who sensibly use us on a regular basis to help smooth blips in their cash flow.

LS: If a student did find themselves unable to make their repayments, what would you advise them to do?
OH: The most important thing, and why we agreed to this interview is to advise students NOT TO BURY THEIR HEADS IN THE SAND. If they are having problems repaying then contact your lender, explain your situation and then things don’t spiral out of control. The minute that a lender doesn’t hear from somebody then they start to get nervous and that is when the loan is typically escalated and passed to loan recovery agents or solicitors. If you stay in contact with Toothfairy then your loan will not get passed to solicitors or debt collectors. We attempt to understand the situation that students are in, that is why we invented the product.

LS: How can students who are having difficulties making repayments contact you?
OH: Phone us, email us, SMS us, fax us.

LS: You say customers experiencing repayment difficulties should phone you, but at the beginning of December I rang the number on the website leaving a message. On your answer-phone it says that you will return messages within five minutes. It is now February and I am yet to receive a phone call from Toothfairy. Why did no one get back to me?
OH: I can only apologise for that. It is highly unusual as we have complete monitoring systems. I will look into that.

LS: Northern Debt Recovery Limited is the debt recovery company that you employ to use against those customers who are still defaulting on their repayments 56 days after they was originally due. According to the Office of Fair Trading (OFT)’s Public Register the license was applied for by a director with the same name as Toothfairy Finance. How do you justify this on a moral basis? Is there not a conflict of interests there?
OH: The name you see is a third party industry advisor working for several companies, this is not uncommon. This is typical of the problems of consumer forums which take a largely irrelevant fact and pretend that this means you don’t have to pay! These forums are dangerous as they offer poorly researched pseudo legal advice with no recourse to themselves, which inevitably lead to consumers “trying it on”, and incurring extra charges when this turns out to be irrelevant. If you have concerns, approach reputable organisations such as the Citizens Advice. It would, however, be naive to assume organisations would lend vast sums of money without the necessary due diligence.

LS: Should Toothfairy not give students advice before lending to them?
OH: Interestingly enough, we wrote to Chris Tapp to ask him if we could use the series of budgeting tools he produces to post on our website and ask if we could put a link into his website so borrowers could seek his advice, but we have had no response.

LS: Maybe because he says that Toothfairy shouldn’t be touched with a barge pole?
OH: I think he is confusing us with the high street banks and their hidden charges. We price transparently, are cheaper than the high street banks and we remind people on a very regular basis when they need to repay and how much they need to repay. I wouldn’t mind if the high street banks were doing this as well, but we’re several levels clearer than them. FACT. The lean of your questions insists that students are being taken advantage of and don’t understand basic financial products. Doesn’t it surprise you that an audience that has researched so much is unable to Google and compare loans products available to them? Students are able to research the financial structure, social implications and impact of the Marshall plan after the Second World War, but not able to put into Google ‘My student loan has run out. What should I do?’ If you do that then you will get a list of advice sites as well as us.

LS: Lastly, can you tell me whether Toothfairy advertises on Facebook?
OH: Yes we do.

LS: Do you advertise on Facebook under the slogan, ‘money all students are entitled to’?
OH: We run a series of advertisements designed to encourage students to research our product further.

In issue 9 we made a number of statements in our article which may have misled our readers. Having discussed these with a representative of Toothfairy Finance, we would like to make the following corrections:

· Toothfairy have evidenced to us that they are fully regulated by the OfT and hold a valid consumer credit license.

· Toothfairy confirm that their loan contract is fully compliant with and enforceable under the Consumer Credit Act

· Toothfairy have shown us extracts from their integrated credit checking system which they have demonstrated performs credit checks sub-second across hundreds of fields helping ensure responsible lending.

· Toothfairy have shown us that they have an automated correspondence system with lenders of which we have seen some examples including reminders

· Toothfairy have stated that their website and the automated correspondence system are intended to ensure that customers are informed of the banking details and charges in a transparent manner to facilitate easy repayment.

· Toothfairy state that all their correspondence is reviewed by Trading Standards with a view to making it as clear, non confrontational and as professional as possible.

Students at the University of Leeds who are experiencing financial difficulties may be eligible for an Access to Learning Fund (ALF) bursary from the University.  To apply contact Financial Aid in Central Student Administration on 0113 343 2007, or visit:
http://www.leeds.ac.uk/studentservicescentre/financial_admin/alf.htm.

For further help and advice on financial  issues students can visit the Student Advice Centre upstairs in the Union.