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 uSwitch.com 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

Picture: ANDRÉ CARRILHO
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Leader: Boris Johnson, a liar and a charlatan

The Foreign Secretary demeans a great office of state with his carelessness and posturing. 

Boris Johnson is a liar, a charlatan and a narcissist. In 1988, when he was a reporter at the Times, he fabricated a quotation from his godfather, an eminent historian, which duly appeared in a news story on the front page. He was sacked. (We might pause here to acknowledge the advantage to a young journalist of having a godfather whose opinions were deemed worthy of appearing in a national newspaper.) Three decades later, his character has not improved.

On 17 September, Mr Johnson wrote a lengthy, hyperbolic article for the Daily Telegraph laying out his “vision” for Brexit – in terms calculated to provoke and undermine the Prime Minister (who was scheduled to give a speech on Brexit in Florence, Italy, as we went to press). Extracts of his “article”, which reads more like a speech, appeared while a terror suspect was on the loose and the country’s threat level was at “critical”, leading the Scottish Conservative leader, Ruth Davidson, to remark: “On the day of a terror attack where Britons were maimed, just hours after the threat level is raised, our only thoughts should be on service.”

Three other facets of this story are noteworthy. First, the article was published alongside other pieces echoing and praising its conclusions, indicating that the Telegraph is now operating as a subsidiary of the Johnson for PM campaign. Second, Theresa May did not respond by immediately sacking her disloyal Foreign Secretary – a measure of how much the botched election campaign has weakened her authority. Finally, it is remarkable that Mr Johnson’s article repeated the most egregious – and most effective – lie of the EU referendum campaign. “Once we have settled our accounts, we will take back control of roughly £350m per week,” the Foreign Secretary claimed. “It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS.”

This was the promise of Brexit laid out by the official Vote Leave team: we send £350m to Brussels, and after leaving the EU, that money can be spent on public services. Yet the £350m figure includes the rebate secured by Margaret Thatcher – so just under a third of the sum never leaves the country. Also, any plausible deal will involve paying significant amounts to the EU budget in return for continued participation in science and security agreements. To continue to invoke this figure is shameless. That is not a partisan sentiment: the head of the UK Statistics Authority, Sir David Norgrove, denounced Mr Johnson’s “clear misuse of official statistics”.

In the days that followed, the chief strategist of Vote Leave, Dominic Cummings – who, as Simon Heffer writes in this week's New Statesman, is widely suspected of involvement in Mr Johnson’s article – added his voice. Brexit was a “shambles” so far, he claimed, because of the ineptitude of the civil service and the government’s decision to invoke Article 50 before outlining its own detailed demands.

There is a fine Yiddish word to describe this – chutzpah. Mr Johnson, like all the other senior members of Vote Leave in parliament, voted to trigger Article 50 in March. If he and his allies had concerns about this process, the time to speak up was then.

It has been clear for some time that Mr Johnson has no ideological attachment to Brexit. (During the referendum campaign, he wrote articles arguing both the Leave and Remain case, before deciding which one to publish – in the Telegraph, naturally.) However, every day brings fresh evidence that he and his allies are not interested in the tough, detailed negotiations required for such an epic undertaking. They will brush aside any concerns about our readiness for such a huge challenge by insisting that Brexit would be a success if only they were in charge of it.

This is unlikely. Constant reports emerge of how lightly Mr Johnson treats his current role. At a summit aiming to tackle the grotesque humanitarian crisis in Yemen, he is said to have astounded diplomats by joking: “With friends like these, who needs Yemenis?” The Foreign Secretary demeans a great office of state with his carelessness and posturing. By extension, he demeans our politics. 

This article first appeared in the 21 September 2017 issue of the New Statesman, The revenge of the left