Wonga announces record profits – but should they have them?

Carl Packman asks if we can be comfortable living in a country where Wonga makes millions.

Wonga – the controversial payday lender – has today announced record profits of £63m for 2012, or roughly £1m per week. More evidence that as financial hardship tears through many families in the UK, selling expensive loans to hard-up people is a growth industry.

Last year PwC noted in a report that between 2008 and 2010 mainstream banks lent around 50 per cent of the total stock of consumer credit. This represented a drastic cut back, despite the fact that wages were declining in this period and the small occurrence of a financial collapse.

These years were not good for borrowers on two counts: firstly it was harder to obtain credit, and second more people were unable to see their wages out to the end of the month.

While Bank of England data reveals that consumer credit has risen in recent times by 3.5 per cent, it does not follow that mainstream banks have returned to providing for local communities again. Another report by CityWire shows that some 52 per cent of the total stock of credit lent comes from "other" financial institutions – the main one being payday lenders.

It is no wonder Wonga have recorded massive profits – we live in the Wonga age.

But is it their fault? Certainly we cannot blame the company for bank failings, the rising cost of living, and declining wages, things over which they can have no effect. But they do control the way in which they sell their loans.

Reports abound of Wonga selling loans to people whose financial situation means that the last thing they need is high cost credit. I wrote in these pages about Susan, the unemployed nurse who was granted several loans by the company to pay for bills and food. At no point was she signposted more affordable alternatives or given debt advice by the payday lender.

Wonga themselves point out that they use a very sophisticated algorithm to determine who it is reasonable to lend to. But it seems there are some deep flaws with this system. This is Money earlier this year reported having spoke to 50 people who had had loans taken out of their accounts – despite those people not having applied for loans themselves. 

To illustrate how much of a problem this could be, aside from potentially losing money and the hassle, This is Money spoke to Adrian Anderson, director of mortgage broker Anderson Harris, who pointed out that: “if [a] loan is taken out fraudulently and subsequently not repaid, this will be seen as a black mark on your credit file and could affect your ability to get a mortgage.”

The image that Wonga present of themselves is different to that of independent pollsters. The company boast that they have a great customer satisfaction record, however YouGov recently surveyed some of its borrowers and found that they scored worse than Ryanair.

Interviewing at random 89 borrowers, 24 per cent were satisfied, 41 per cent dissatisfied, and 35 per cent neutral.

Wonga are, indeed, a consequence of the deleterious financial situation in the UK, rather than a cause of it. No one would deny this. But their loans don't help the personal finances of many vulnerable today. They say they turn many people away. Perhaps true, but should they warn more people of the dangers of using their product? I say yes. In addition to financial health warnings being put on their adverts, I'd like to see Wonga advertising the services of ethical lenders such as credit unions – who are better placed to serve those financially vulnerable people in hock to them.

So now Wonga have made all that money, should they keep it? Far be it from me to tell a private company what to do with its money, but maybe they could offer some to the Church of England who, along with the archbishop of Canterbury Justin Welby, are busy making the case and building up the presence of credit unions. Though really I would prefer to see the company make less money in the future – after all, nobody should be comfortable with the idea of firms profiting from poverty. It may be legal, but is it right?

A payday lender in Brixton. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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Who is the EU's chief Brexit negotiator Michel Barnier?

The former French foreign minister has shown signs that he will play hardball in negotiations.

The European Commission’s chief Brexit negotiator today set an October 2018 deadline for the terms of Britain’s divorce from the European Union to be agreed. Michel Barnier gave his first press conference since being appointed to head up what will be tough talks between the EU and UK.

Speaking in Brussels, he warned that UK-EU relations had entered “uncharted waters”. He used the conference to effectively shorten the time period for negotiations under Article 50 of the Lisbon Treaty, the legal process to take Britain out of the EU. The article sets out a two year period for a country to leave the bloc.

But Barnier, 65, warned that the period of actual negotiations would be shorter than two years and there would be less than 18 months to agree Brexit.  If the terms were set in October 2018, there would be five months for the European Parliament, European Council and UK Parliament to approve the deal before a March 2019 Brexit.

But who is the urbane Frenchman who was handpicked by Commission President Jean-Claude Juncker to steer the talks?

A centre-right career politician, Barnier is a member of the pan-EU European People’s Party, like Juncker and German Chancellor Angela Merkel.

A committed European and architect of closer eurozone banking integration, Barnier rose to prominence after being elected aged just 27 to the French National Assembly.  He is notorious in Brussels for his repeated references to the 1992 Winter Olympics he organised in Albertville with triple Olympic ski champion Jean-Claude Killy.

He first joined the French cabinet in 1993 as minister of the environment. In 1995, Jacques Chirac made him Secretary of State for European Affairs, teeing up a long and close relationship with Brussels.

Barnier has twice served as France’s European Commissioner, under the administrations of Romano Prodi and José Manuel BarrosoMost recently he was serving as an unpaid special advisor on European Defence Policy to Juncker until the former prime minister of Luxembourg made him Brexit boss.“I wanted an experienced politician for this difficult job,” Juncker said at the time of Barnier, who has supported moves towards an EU army.

 

Barnier and the Brits

Barnier’s appointment was controversial. Under Barroso, he was Internal Market commissioner. Responsible for financial services legislation at the height of the crisis, he clashed with the City of London.

During this period he was memorably described as a man who, in a hall of mirrors, would stop and check his reflection in every one.

Although his battles with London’s bankers were often exaggerated, the choice of Barnier was described as an “act of war” by some British journalists and was greeted with undisguised glee by Brussels europhiles.

Barnier moved to calm those fears today. At the press conference, he said, “I was 20 years old, a very long time ago, when I voted for the first time and it was in the French referendum on the accession of the UK to the EU.

“That time I campaigned for a yes vote. And I still think today that I made right choice.”

But Barnier, seen by some as aloof and arrogant, also showed a mischievous side.  It was reported during Theresa May’s first visit to Brussels as prime minister that he was demanding that all the Brexit talks be conducted in French.

While Barnier does speak English, he is far more comfortable talking in his native French. But the story, since denied, was seen as a snub to the notoriously monolingual Brits.

The long lens photo of a British Brexit strategy note that warned the EU team was “very French” may also have been on his mind as he took the podium in Brussels today.

Barnier asked, “In French or in English?” to laughter from the press.

He switched between English and French in his opening remarks but only answered questions in French, using translation to ensure he understood the questions.

Since his appointment Barnier has posted a series of tweets which could be seen as poking fun at Brexit. On a tour of Croatia to discuss the negotiations, he posed outside Zagreb’s Museum of Broken Relationships asking, “Guess where we are today?”

 

 

He also tweeted a picture of himself drinking prosecco after Boris Johnson sparked ridicule by telling an Italian economics minister his country would have to offer the UK tariff-free trade to sell the drink in Britain.

But Barnier can also be tough. He forced through laws to regulate every financial sector, 40 pieces of legislation in four years, when he was internal market commissioner, in the face of sustained opposition from industry and some governments.

He warned today, "Being a member of the EU comes with rights and benefits. Third countries [the UK] can never have the same rights and benefits since they are not subject to same obligations.”

On the possibility of Britain curbing free movement of EU citizens and keeping access to the single market, he was unequivocal.

“The single market and four freedoms are indivisible. Cherry-picking is not an option,” he said.

He stressed that his priority in the Brexit negotiations would be the interests of the remaining 27 member states of the European Union, not Britain.

“Unity is the strength of the EU and President Juncker and I are determined to preserve the unity and interest of the EU-27 in the Brexit negotiations.”

In a thinly veiled swipe at the British, again greeted with laughter in the press room, he told reporters, “It is much better to show solidarity than stand alone. I repeat, it is much better to show solidarity than stand alone”.

Referring to the iconic British poster that urged Brits to "Keep Calm and Carry On” during World War Two, he today told reporters, “We are ready. Keep calm and negotiate.”

But Barnier’s calm in the face of the unprecedented challenge to the EU posed by Brexit masks a cold determination to defend the European project at any cost.

James Crisp is the news editor at EurActiv, an online EU news service.