Tuesday, 28 August 2018

Wonga on the edge - about bloody time

Now here is a tale of real disgrace for New Labour and then Tory ambivalence only late turning into action. I won't shirk when it has been so wrong for so long.


Wonga is about to go under, announcing another huge loss is coming and three years of huge losses on such a small lending book with the regulatory environment against it - it's curtains. Wonga will be a thing of history soon.


Way back in 2007, when Gordon Brown (who was much worse  than May, let's not forget this - she is inactively terrible, he was actively malign), surveyed all, Wonga was set-up. The premise was, in this time of ultra cheap credit, that some people could not get any. Not Wonga obviously, they got a nice cheap credit line, but there game was usurious lending to the desperately poor. To me, this is like betting on the increase in food prices - just morally wrong.


But in those heady days, anything went and the Regulator was happy to approve the business. Soon enough it grew large on the often over 1000% APR returns it managed to create. However, built on immorality from the start, the business soon festered. To chase clients, they pretended to send letters from law firms to chase for money back.


By 2012 Wonga had become a target for everyone. Even the new FCA could see it and finally steamed into action, capping its insane interest rates and allowing customers to claim back the usurious monies extracted from them. Quickly the business started to fall, unfortunately driven too by a rise in competition  - at least though this restricts interest to a mere 300% per year.


So here we are in 2018, struggling under the weight of its past, Wonga will die.


But really, how on earth was this business ever allowed to exist. Desperate people need money and it can be very hard to get. Yes, there are back street lenders and criminals who purvey this sort of thing - but they are no legal, they have no claim other than threatening physical violence. To allow to pass into law and common practice such usury is a terrible stain on the Labour Government - THE LABOUR GOVERNMENT! Not helped by the incoming Tory administration who at least have overseen a regulation of this business - but, to me crazily, still allowed it to exist.


It is a sorry story and one which really shows how distant politicians are from both the people they serve and the basic principles of economics that they would ever allow this carry on.

20 comments:

david morris said...

But isn't W just smaller version of the scam foisted upon us all when Clinton forced US Banks to lend to people with little/no/poor credit record ?

It's all about the votes baby

Matt said...

The APR was based on the short term lending and the overheads of processing the loan application so was never as bad as made out.

That said, it's very expensive for people to take one of these loans and it's invariably the worst off who will need to.

However, what business will lend at anything like normal rates to people with poor credit history when many won't pay it back?

Will be end up with the government forcing mainstream banks to lend at lower rates to poor credit risk customers?

Isn't this what kicked off sub-prime mortgages and the 2007 bust in the US?

Sebastian Weetabix said...

The Labour Party was once Methodist inspired Christian Socialism at work: against usury, drunkenness, gambling, for the betterment of the working man, explicitly anti-Communist and committed to Parliamentary democracy. Now look at them.

CityUnslicker said...

Matt/David - this has nothing to do with the US, for they do things differently there. This is about licensing usury upon our own poor folk here in the UK - show me the middle class or above person that has ever dealt with a company like this.

There may well be demand for credit, it may well be something suitable could be offered with close regulatory supervision (even today, the heavier regulation has taken the cowboys and thieves out).

This was not it, it is a total and utter disgrace that this was allowed at all.

E-K said...

Coupled with Labour's extensions on gambling and boozing.

Unknown said...

The People's Party about to give The People's Vote.

K said...

Isn't the argument for pay day loans the whole point of credit cards and overdrafts? The problem is too many people see credit card or overdraft debt as "normal".

Do you think people getting pay day loans were previously denied credit or spent it all?

Anonymous said...

Pawn shops were useful.

Don Cox

Timbo614 said...

@K Quite. CC debt is considered normal. I have a friend who got paid out on a PPI claim, he got 3 x the amount he had on his card. I urged him to pay this off with his windfall- but he didn't. Neither does he know the interest rate he is paying!

P.S. Hi all! I still lurk and have just retired or more accurately semi-retired. So maybe I'll have time to comment more.

P.P.S. @CU - Nit pick - It's 2018 not 17!

Electro-Kevin said...

When I've been in trouble I literally went to beans and used jars to budget with coins.

I hate having debt. I'd rather go without.

Electro-Kevin said...

PS, If the Tories were the nasty party then Labour is the evil one.

Nick Drew said...

on top of the traditional wonga- and cc-fodder, we now have a generation of former students for whom quite serious debt (well, notional debt) is the norm

Heaven alone knows what long-term impact that will have on the psyche of the middle classes as regards what's normal vis-a-vis debt

dearieme said...

"THE LABOR GOVERNMENT!"

Those fucking Ozzies. How dare they interfere?

CityUnslicker said...

Great typo’s by my good self today!

dearieme said...

It wasn't long after Caligula that Nero got the job.

Matt said...

@CityUnslicker

"it may well be something suitable could be offered with close regulatory supervision (even today, the heavier regulation has taken the cowboys and thieves out)."

Doesn't seem to be the case - the stronger regulation has just closed the payday lenders. Don't see any new business opening up to service this demand. Reason is that you have to charge high rates to cover defaults. A large proportion of the borrowers are going to default so how do you cover that without the high rates.

Any socialisation of the costs is just a tax on the prudent.

K said...

But what is the demand? Is it people who are denied any kind of credit or people who were previously granted credit but spent it all?

Something suitable should be offered to the former but the latter needs better education.

Matt said...

I suggest the alternative to payday lenders are credit unions. Looks like some legislation was enacted under Labour to get them to replace door step lenders and loan sharks (warning - source Wikipedia!).

Also looks like they are failing (Wikipedia) at a pretty quick rate due to competition from payday lenders?

So, why is that? Doesn't seem to be because they are more expensive from an APR perspective. Perhaps it's because they require you to have an account and some savings before they'll make a loan. Probably also want you to give a reason for the loan.

Might I suggest people pay 1000% APR because they find it a more attractive option that the requirements above?

Anonymous said...

Rarely I agree with the Graun about anything but ...

https://www.theguardian.com/commentisfree/2018/aug/30/cheer-wonga-fails-grateful-payday-lender-valuable-service

Wonga is a symptom of a society in which millions of people – millions of families – can’t make enough money to get by, even on essentials. The companies and services that grow up out of a society in that situation are often not palatable, but they’re rarely the real driver of the problem. There are exceptions – if you want a type of company which genuinely makes the problems still worse, look no further than weekly hire-purchase companies such as BrightHouse, which charge people huge overall sums.

If Wonga disappeared tomorrow – which it won’t; in practice it would likely be bought up from administration immediately – many would cheer, but for many people who used it, it would merely make their already bad situation slightly worse.

Wonga helped me, and doubtless helped plenty of other people. They deserve zero credit or praise for that, and surely harmed many others. But too many people who write about struggling to get by never have, and so misunderstand where the problems really are.

Peter MacFarlane said...

The people who used to borrow from Wonga will now be borrowing from the guys who call round with baseball bats.

Not sure it's an improvement, really.