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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After a year of chaos, MPs from all parties are trying to stop an extreme Brexit

The Greens are calling for a cross-party commission on Brexit.

One year ago today, I stood on Westminster Bridge as the sun rose over a changed country. By a narrow margin, on an unexpectedly high turnout, a majority of people in Britain had chosen to leave the EU. It wasn’t easy for those of us on the losing side – especially after such scaremongering from the leaders of the Leave campaign – but 23 June 2016 showed the power of a voting opportunity where every vote counted.

A year on from the vote, and the process is in chaos. Perhaps we shouldn’t be surprised. The Leave campaign deliberately never spelled out any detailed plan for Brexit, and senior figures fought internal battles over which model they preferred. One minute Britain would be like Norway, then we’d be like Canada – and then we’d be unique. After the vote Theresa May promised us a "Red, White and Blue Brexit" – and then her ministers kept threatening the EU with walking away with no deal at all which, in fairness, would be unique(ly) reckless. 

We now have our future being negotiated by a government who have just had their majority wiped out. More than half of voters opted for progressive parties at the last election – yet the people representing us in Brussels are the right-wing hardliners David Davis, Liam Fox and Boris Johnson.

Despite widespread opposition, the government has steadfastly refused to unilaterally guarantee EU citizens their rights. This week it has shown its disregard for the environment as it published a Queen’s Speech with no specific plans for environmental protection in the Brexit process either. 

Amid such chaos there is, however, a glimmer of hope. MPs from all parties are working together to stop an extreme Brexit. Labour’s position seems to be softening, and it looks likely that the Scottish Parliament will have a say on the final deal too. The Democratic Unionist Party is regressive in many ways, but there’s a good chance that the government relying on it will soften Brexit for Northern Ireland, at least because of the DUP's insistence on keeping the border with Ireland open. My amendments to the Queen’s speech to give full rights to EU nationals and create an Environmental Protection Act have cross-party support.

With such political instability here at home – and a growing sense among the public that people deserve a final say on any deal - it seems that everything is up for grabs. The government has no mandate for pushing ahead with an extreme Brexit. As the democratic reformers Unlock Democracy said in a recent report “The failure of any party to gain a majority in the recent election has made the need for an inclusive, consensus based working even more imperative.” The referendum should have been the start of a democratic process, not the end of one.

That’s why Greens are calling for a cross-party commission on Brexit, in order to ensure that voices from across the political spectrum are heard in the process. And it’s why we continue to push for a ratification referendum on the final deal negotiated by the government - we want the whole country to have the last word on this, not just the 650 MPs elected to the Parliament via an extremely unrepresentative electoral system.

No one predicted what would happen over the last year. From the referendum, to Theresa May’s disastrous leadership and a progressive majority at a general election. And no one knows exactly what will happen next. But what’s clear is that people across this country should be at the centre of the coming debate over our future – it can’t be stitched up behind closed doors by ministers without a mandate.

Caroline Lucas is the MP for Brighton Pavilion.

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