It's been a good year for Wonga. That's never a good sign

Record profits.

It’s just the kind of the thing you don’t want to hear. Reportedly, nine of UK’s 10 biggest payday lenders have seen their turnover double in the last three years. One has even recorded a 32-fold increase in profits since the start of the recession.

The worrying news comes days after payday giant Wonga reported record profits – a 36 per cent increase to £62m on a turnover of £309m in 2012. In fact, a year-long review by the Office of Fair Trading (OFT) has revealed that half of the payday lenders' revenues was the result of rolled over loans.

Every time there is optimism about the economy, news about how payday lenders are still very much thriving across the UK as well as the US, and only getting stronger, provides a reality check. Over the years, small and medium sized payday loan shops (many not so ‘small or medium sized’ any longer) have mushroomed (think Quick Quid, Better Credit, Ferratum…) and the demand keeps growing. Recently, there has also been much talk around adverting spends for payday loans increasing exponentially.

Wonga has predictably been criticised for profiting from the poor’s miseries and pushing the needy deeper into debt. However, Errol Damelin, Wonga’s founder and chief executive, has defended the firm’s profits saying most of Wonga’s customers are apparently “young, single, employed, digitally savvy and can pay us back on time”, and it’s not about “people on breadlines being desperate”. At this point, Wonga and the likes of it are in a strong place.

Recently Labour MP Stella Creasy said that money made in the payday lending industry comes at a heavy cost to Britain. Rightfully so. But clearly there is massive need for such quick money. Earlier in the year, research from found that 49 per cent of those who took out a payday loan actually cited their experience as positive, contrary to popular perception, and one in three said they would even take one out again.

A few months ago Citizens Advice said high street banks should step up and provide short-term, micro-loans to fulfil demand for “these kinds of products”. But is it actually better when banks offer similar, predatory, expensive short-term loan products to customers?

Leading banks, particularly across the US, offer payday loan-like schemes that they vehemently defend as products aimed at stopping customers from going to dodgy small shops when in immediate need of cash. Top US lenders such as Wells Fargo (Direct Deposit Advance scheme), US Bank (Checking Account Advance loan), Regions Financial (Ready Advance loan product) to name a few offer short-term, sky-high interest loan products that almost mirror payday loans. 

Going back a couple of years, the Big Banks Payday Loans report, published by non-profit research and policy organisation, the Centre for Responsible Lending (CRL), in July 2011, revealed that bank payday loans carry an annual percentage rate (APR) of 365 per centbased on the typical loan term of 10 days. The average credit card interest rate, comparatively, in 2011, was just over 13 per cent annually, and the average personal loan from a commercial bank was 11.47 per cent. 

Through bank payday loan rates, consumers pay over $900 in interest to borrow approximately $500 for less than six months, the CRL report calculated. In general, an estimated 12m Americans are annually caught in long-term debt from such loans.

Banks, however, insist on the contrary. A spokesperson for Wells Fargo told me last year that the lender’s Direct Deposit Advance (DDA) loan scheme – a product that charges $1.50 for every $20 advance – is on offer because the lender “understands that financial emergencies come up and we want to be able to help customers with that”. Though she accepted that it is an “expensive form of credit” that is “not intended to solve longer term financial needs”, she also explained that “customers can extend or roll over the advance so it does not grow” and “there is never a mountain of debt that this customer is under”. Fair enough.

It is in ways safer for a customer to borrow from a familiar, popular bank as opposed to small, seedy loan sharks online or across the street.  But the question around whether or not these options should exist in the first place – especially be offered by financial institutions that people trust – is the bigger issue. One does wonder what kind of message that imparts, even though it may be the lesser of the evils.

Most welfare organisations are not convinced by banks’ “concerns” towards cash-strapped consumers. The federal agency primarily responsible for regulating consumer protection in the US, the Consumer Financial Protect Bureau (CFPB), began operations in July 2011, and has the power to write and enforce rules against predatory practices in payday lending. US’ National Consumer Law Center (NCLC), in fact, issued a statement to the Office of the Comptroller of the Currency (OCC) as well the CFPB back in August 2011 stressing that regulators put a stop to banks offering payday loans or similar products all together – but of no avail so far. Similar requests have come up time and again. Consumer groups have also complained that the OCC's guidelines are not “tough enough” and perhaps encourage more banks to offer such loans.

There are already several concerns surrounding UK banks’ most common overdraft schemes – including high cost, short-term balloon repayment, and consequent excessive use. Do customers need more ways to pile up bad debts? Considering the necessities, maybe it is time for banks to take a more customer centric approach and design new products that can be of immediate short-term help without leading disadvantaged clients into further financial agony. One can only hope.

Banks offering payday loan-like schemes do make them seem more approachable for customers who still think twice about walking into small shops for urgent money – the big-bank-backing may well make skeptical customers go ahead and do so – which is a bad sign. But there are enough people already reaching out to non-bank firms for money, which is a sign of grave need. There are doubts and dangers both ways, and unfortunately all one can say with certainty right now is that it’s been a good year for Wonga. That can never be a good sign.

Wonga Logo. Photograph: Getty Images

Meghna Mukerjee is a reporter at Retail Banker International

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Winning Scottish independence will be even harder than before - but it may be the only choice

Independence campaigners will have to find answers on borders, currency and more. 

The Brexit mutiny has taken not just the UK economy and its relationship with Europe into uncharted waters. it has also imperilled the union between Scotland and England. From Sir John Major to the First Minister, both Unionists and Nationalists had warned of it. The outcome, though, has made this certain. The Leave vote in England and Wales contrasted with an overwhelming Remain vote north of the border.

That every region in Scotland voted to stay In was quite remarkable. Historically, fishing and industrial communities have blamed the European Union for their woes. That antagonism was probably reflected in lower turnout - an abstention rather than a rejection. 

The talk now is of a second referendum on independence. This is understandable given the current mood. Opinion polls in the Sunday Times and Sunday Post showed a Yes vote now at 52 per cent and 59 per cent respectively. Moreover, anecdotal evidence suggests even arch No vote campaigners, from JK Rowling to the Daily Record, are considering the option.

The First Minister was therefore correct to say that a second referendum is now “back on the table”. Her core supporters expects no less. However, as with the economy and Europe, the constitutional relationship between Scotland and England is now in uncharted seas. Potential support for independence may be higher, but the challenges are arguably bigger than before. The difficulties are practical, political and geographic.

Of course the Little Englanders likely to take the helm may choose a velvet divorce. However, given their desire for the return of the Glories of Britannia that’s improbable. They’re as likely to wish to see Caledonia depart, as cede Gibraltar to Spain, even though that territory voted even more overwhelmingly In.

Ticking the legal boxes

Practically, there’s the obstacle of obtaining a legal and binding referendum. The past vote was based on the Edinburgh Agreement and legislation in Westminster and Holyrood. The First Minister has indicated the democratic arguments of the rights of the Scots. However, that’s unlikely to hold much sway. A right-wing centralist Spanish government has been willing to face down demands for autonomy in Catalonia. Would the newly-emboldened Great Britain be any different?

There are no doubt ways in which democratic public support can be sought. The Scottish Government may win backing in Holyrood from the Greens. However, consent for such action would need to be obtained from the Presiding Officer and the Lord Advocate, both of whom have a key role in legislation. These office holders have changed since the first referendum, where they were both more sympathetic and the legal basis clearer. 

Getting the EU on side

The political hurdles are, also, greater this time than before. Previously the arguments were over how and when Scotland could join the EU, although all accepted ultimately she could remain or become a member. This time the demand is that Scotland should remain and the rest of the UK can depart. But will that be possible? The political earthquake that erupted south of the Border has set tectonic plates shifting, not just in the British isles but across the European continent. The fear that a Brexit would empower dark forces in the EU may come to pass. Will the EU that the UK is about to leave be there for an independent Scotland to join? We cannot know, whatever European Commission President Jean-Claude Juncker may be saying at the moment. The First Minister is right to start engaging with Europe directly. But events such as elections in France and the Netherlands are outwith her control. 

Moreover, currency was the Achilles heel in the last referendum, and hasn’t yet been addressed. George Osborne was adamant in his rejection of a currency union. The options this time round, whether a separate Scottish currency or joining the euro, have yet to be properly explored. A worsened financial situation in the 27 remaining EU members hampers the latter and the former remains politically problematic. 

The problem of borders

Geography is also an obstacle  that will be even harder to address now than before. Scotland can change its constitution, but it cannot alter its location on a shared island. In 2014, the independence argument was simply about changing the political union. Other unions, whether monarchy or social, would remain untouched. The island would remain seamless, without border posts. An independent Scotland, whether in or out of the EU, would almost certainly have to face these issues. That is a significant change from before, and the effect on public opinion unknown.

The risk that's worth it

Ultimately, the bar for a Yes vote may be higher, but the Scots may still be prepared to jump it. As with Ireland in 1920, facing any risk may be better than remaining in the British realm. Boris Johnson as Prime Minister would certainly encourage that. 

David Cameron's lack of sensitivity after the independence referendum fuelled the Scottish National Party surge. But perhaps this time, the new Government will be magnanimous towards Scotland and move to federalism. The Nordic Union offers an example to be explored. Left-wing commentators have called for a progressive alliance to remove the Tories and offer a multi-option referendum on Scotland’s constitution. But that is dependent on SNP and Labour being prepared to work together, and win the debate in England and Wales.

So, Indy Ref The Sequel is on the table. It won’t be the same as the first, and it will be more challenging. But, if there is no plausible alternative, Scots may consider it the only option.

Kenny MacAskill served as a Scottish National MSP between 2007 and 2016, and as Cabinet Secretary for Justice between 2007 and 2014.