Wonga are trying to pull the wool over our eyes

Wonga are on a mission to pull the wool over our eyes on their very expensive credit product and the customers who they serve.

Wonga are on a mission to pull the wool over our eyes on their very expensive credit product and the customers who they serve.

The much talked about Wonga film, released today, shows 12 customers who have taken out loans with Wonga to whom the loan was a lifeline.

However as Stella Creasy said last night on Twitter: “you can find 12 happy customers, I can provide you with 1200 caught in toxic payday loan trap”.

Indeed, I have spoken to many people in the course of my work looking at payday lending who have taken out loans with Wonga and have suffered significantly from doing so.

Wonga often neglects to carry out full and proper credit checks on people before lending out money. They also very often fail to communicate to people who borrow from them their rights as consumers regarding the continuous payment authority (CPA).

The CPA is a means by which lenders retrieve money, but many complaints about the payday lending industry include money being withdrawn without prior notice.

In August Citizens Advice released an in depth analysis of 665 payday loan cases, findings of which showed that more than a third involved issues with continuous payment authorities including money that was not authorised to be taken.

We know Wonga do this from a number of sources, but the most shocking has to be the story of the 15 year old boy who had £260 taken from his savings account after he was the victim of fraud.

This breaches a whole host of rules that are not only in the Office of Fair Trading’s guidelines but which are also in the Finance and Leasing Association’s codes – which are the codes undertaken by the trade body who represent Wonga.

First it shows that Wonga takes money from people’s accounts without giving prior notice. Even though it was a fraudulent loan, the company should have contacted the account holder of the borrower before withdrawing funds. These are basic and statutory debt management rules.

Second it shows that not only do they not carry out good credit checks, but that they carry out no checks on some occasions. Otherwise we can infer that they had, in this instance, meant to lend to an under-18 year old.

Go to the Wonga website and you will see that they say they don’t lend to under-18s as a policy.

(You can find many other cases here and here and throughout the Consumer Action Group’s website.)

I’m particularly sceptical of the Wonga Boss, Niall Wass, telling members of the press throughout the day that most Wonga customers are happy and that most loans taken out with his company end fine.

I worry firstly because we rarely are able to see the real cost of what an expensive payday loan like Wonga’s can do. It costs £37 for every £100 borrowed from them – which even in the industry is expensive.

Back last year I asked Wonga’s communications director if he would send me details of the company’s ratings among its customers. He sent me a survey completed by Populus. However he didn’t send me it all.

Despite the fact we know how many customers Wonga have, and the profit they make, he said that by providing me detailed breakdowns of customer satisfaction this would breach business confidentiality.

The report, as it was revealed to me, had problems. Wonga had lent out 1.5 million loans in total in the middle of 2011, at a time when their heavy advertising campaign was just getting started, so to start with the report could have benefitted from information such as sample size.

I was unable to determine how the sample was chosen and what the size was. It only showed percentages (which is ironic given that Wonga hate APR because interest rate percentages don’t give you an accurate cost of a loan).

In the customer satisfaction section of the report, there were 11 comments, all very nice, all strangely soundbite-esque,and completely without reference to who said them.

I would take everything Niall Wass is saying with a pinch of salt when he refers to the percentage of customers who are satisfied. It is likely to be based on a relatively small sample, and not reflective of the many people who suffer through having taken out a Wonga loan.

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11 Responses to “Wonga are trying to pull the wool over our eyes”

  1. roggy1

    “which is ironic given that Wonga hate APR because interest rate percentages don’t give you an accurate cost of a loan”. I think they don’t like APR because it gives an all too accurate cost of the loan

  2. anon

    Ironic that Left Foot Forward are accepting advertising from other payday loans companies. I’ve loaded this page three times, and seen adverts for Peachy Loans and 100DayLoans, with big headers saying “No Credit Checks!” I appreciate that the adverts are powered by adsense, but it is possible to exclude advertisers.

  3. sparky

    But what’s the logic in comparing a loan for £100 that’s intended to be paid back in a month with a loan of £5000 that intended to be paid back over 24 or 36 months. They’re completely different products.

  4. roggy1

    Because that is the standard measure by which loans are judged. The reason they don’t want to express the APR is precisely because it is huge.

    Given the frequency with which borrowers roll over the loans, and the dependance of the companies on those rolled over loans, (19% of payday loan company revenue comes from loans that are rolled over 4 or more times [source OFT]) the payday loan becomes much more similar to a longer term loan.

  5. swatnan

    Talk to those people who’ve taken out payday loans, and they’ll tell you its so quick; you virtually get the loan within 15 minutes, with few questions asked. Go through the other channels and they want to know everything about you from your inside leg measurement to what you had for breakfast. The point is the kind of people in need of emergency loans don’t want to go though complicatecd procedures. They have enough questions from officialdom prying into their lives.Thats their attraction. Tackle tha and you’ll send these loan sharks on their way.

  6. Carl Robert Packman

    It’s behavioural advertising, LFF don’t pay companies.

  7. Nev

    Oh No adchoices have the Wonga official site ad at the top of the page right now. Is it a sick joke?

  8. Sparky

    The only reason that APR is ‘the standard measure by which loans are judged’ is because it was formulated in an era when payday loans didn’t exist, and so was a meaningful figure when comparing different loans of similar loan periods. Financial products have changed.

    19% of payday loan revenue comes from rollovers. Or to put it another way: 81% of all payday loans are repaid in full over 1 to 3 months. The vast majority of payday loans, then, are very short term loans, much shorter than a bank loan or a finance company.

  9. Sparky

    The high charges simply reflect the extra risk that the company bears in lending money to higher-risk customers. It’s bearing a higher risk than traditional banks so it needs a higher reward. That’s all there is to it.

    Of course you’ll find dissatisfied customers. That is entirely consistent with the elevated risk-profile of the customer base. It doesn’t mean anything.

  10. roggy1

    Just under a third of payday loans are not paid back on time and are then refinanced. 50% of the companies’ revenue comes from loans which are not paid back in time.

    I disagree with you on the appropriateness of an APR for short term contracts, it is after all used for yield on Treasury Bills without any difficulty which in the secondary market can be of much shorter term than a payday loan.

    You cannot get away from the fact that payday loans companies target the most vulnerable with extremely expensive loans compared to their size and that a very significant portion of their revenue results from those people being unable to pay back their loans.

  11. FTM

    However Wonga choose to dress it up they are ripping people off…….borrow £10.00 for 1 day and repay £15.66, I don’t know how these people sleep at night.

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