It says a lot about an industry when rules for fair treatment are enforced and it sulks
After Sky News picked up intelligence a couple of days ago that Wonga.com would record losses for 2014, any mention of the company on Twitter has been to offer the following assessment: “well,they’ve had this coming.”
I don’t disagree. Let’s be absolutely clear: Wonga has brought this profit loss on itself. The company used to say that it picked up a disproportionate amount of the slack for the entire payday loans sector, but don’t be fooled: for what has been reported today Wonga is entirely to blame.
2014 was the year the company was exposed for sending out fake legal letters to debtors who were struggling to pay back their loans. Taking the surname of three members of staff, putting it on top of a formal-looking letter and sending it to people who are the most financially vulnerable – that’s the sort of company we are dealing with here.
2014 was also the year that Wonga was nudged by the Financial Conduct Authority (FCA) to write off the debts of 330,000 people on its loan book, and cancel the interest and payments of a further 46,000 people. They were told to do this because those loans, in retrospect, when the regulator looked at the loan book, were made irresponsibly to people who would struggle to pay back – and that’s a very large proportion of people who Wonga felt it was right to sell money to.
Don’t Wonga provide help for people let down by the banks, though?
It is true that the banking sector has played an enormous part in propping up the payday loans sector, not by providing it money or backdoor assistance, but in the way it has ignored large sections of society – ie the working poor.
However, on the flipside, this fact is not a free pass for Wonga and the other payday loan firms to treat customers like dirt. What other company do you know that could expect to consistently break the rules and not see its profits fall?
A lot of questions will be asked today about the regulatory regime. The FCA started to regulate the payday loans sector in 2014, promising to ‘add teeth’ to a once sloppily enforced set of rules for consumer credit firms. However as far as rules are concerned, all they are doing is enforcing the existing ones: treat customers fairly, be transparent with prices, reduce and abolish all mechanisms that might result in debtors paying a larger penalty for their loans, such as misusing the continuous payment authority or high frequency of rollover loans.
Wonga resorted to dirty tactics and today it is paying a price for that. The industry itself, to which Wonga belongs, has consistently called for looser restrictions – after all, that is where the money is. When rules aren’t enforced then lenders can ignore them. But that‘s when consumers get stung.
It says a lot about an industry that when rules such as fair treatment are enforced, it sulks. Many firms have decided not to re-apply for their licenses. For what it’s worth I think that’s regrettable. I would have been happier to see a reformed short-term loans market. But firms realised they couldn’t turn as much of a profit and play by the rules, so many have thrown their toys out of the pram.
What is a more worrying is the firms that are now ‘former payday loan firms’. Questions remain as to whether loan firms will set themselves up as longer-term lending firms, to get around rules for lenders offering short-term credit contracts. The Financial Conduct Authority has to be vigilant to this.
For a long time Wonga thought it was above the law. I don’t think that’s a good thing, and nor does the regulator. We should not be held to ransom by these companies. The rules aren’t punitive; they are fair. It’s a concept they chose to disregard for their own customers. I’m glad to see the reality has finally hit them.
Carl Packman is a contributing editor to Left Foot Forward and the author of Loansharks: The rise and rise of payday lending
5 Responses to “Wonga is finally paying the price for its dirty tactics”
James Chilton
Bring back the GPO and make it a Department of State. Among its services provide savings and loan accounts for people – usually on low incomes – that the banks won’t touch. Let the state assume the risks involved.
It’s almost unimaginable now, that the Labour party would even consider such a policy.
Leon Wolfeson
I’m not sure that’s appropriate, honestly. And I’d not be ready to trust the government.
Let’s change the rules instead, and make it far easier for communities to set up credit unions and mutual banks – America has them, for flip sake.
James Chilton
Community credit unions and mutual banks are creditable institutions in more senses than one. But they do not address the national ‘shortage’ of loans for workers on low incomes, in the comprehensive way that a state controlled system could.
treborc1
True I have been with a credit union for years building up a little pot to retire to, went down for a short term load needed urgently, my sister in lower was so ill at Christmas with cancer and they stopped her benefits for five weeks , then she asked for help I tried to get money out you have to give a notice , went to my bank and they said new rules we do not give to people on welfare, credit union nope and I went to wonga got £1,000 , repaid it on time, as I have all my life when I had a loan.
Thank god for Wonga is all I can say, but of course I repaid it on time, I’d hate to see if if I did not.
Leon Wolfeson
The main (most common anyway) issue there isn’t loans per-se, but deposits for rents, which there could be alternative systems for.
Short-term overdrafts are better dealt with within a bank account tailored for it.
If you mean business loans, I submit it’d be far better for arms-length loans via again mutuals and credit unions rather than for the state to directly stake individuals.
(Also, I support a basic income, which gets rid of most of the issues. If you need a crisis loan with that, you can leverage it using your basic income – although there do needs to be some checks there to i.e. prevent compulsive (as in, ill) gamblers from getting stakes that way)