Whilst many businesses struggle to survive in our fragile economy, payday lender Wonga is one of our few home grown success stories. Today they announced they are making more than £1million a week in profit- a 36% increase on last year. No one could begrudge a company that works hard to serve their customers and is rewarded for it. But money made in this industry comes at a heavy cost to our country.
Evidence of just how exploitative this business is has led the Office of Fair Trading to refer the entire payday lending industry to the Competition Commission. Despite repeated warnings, the Government refuses to cap what can be charged for credit and so protect consumers from the debt these loans can bring. As such legal loan shark companies thrive, Wonga's success says more about where our country is going wrong than right.
Payday lending has become the norm for millions as they try to manage having too much month at the end of their money. 80% of loans are for basics; Britons are putting their rents, mortgages, travel costs, food and heating bills on the tick to get through the week. Not everyone who borrows from these firms gets into financial trouble, but enough do as a result of the terms of the loan that such mega profits are achievable even in times of economic difficulty.
Their customers know how costly this credit is - 40% of those who took out a payday loan say it made their financial position worse. But many feel they have little alternative. Research by Which? shows half of all borrowers who have taken out a payday loan have borrowed credit they couldn't repay - with 57% having missed a payment and a quarter using it to pay off other forms of credit.
The damage these firms are doing to our country is not just to be seen today - it is destructive to our tomorrow as well. Whether investing in property, education or saving for old age, many are saddled with a level of personal debt that makes forward planning impossible. Families living under the shadow of £10,000 or more of unsecured debt cannot hope to offer their children the chances of their counterparts, nor cope with the costs of caring for their elders with dignity. Debt doesn't just harm everyday finances, it narrows horizons too.
For three years many have been trying to warn the Government they needed to protect consumers from this, calling for Britain to follow the lead of most other countries in introducing a cap on the cost of credit. Such caps help limit the price of any loan, so breaking the cycle of debt borrowing in this way can create. Now as debt engulfs the household budgets of so many, we see the consequences of the Government's choice not to act.
In the last four years the Citizens Advice service has seen a ten-fold increase in the proportion of clients seeking help with multiple bills that included payday loan debt. There is every sign these problems are getting worse not better. Half of all adults, just over 20 million people, say they are now worried about their current level of debt, an increase from 42% earlier this year.
The Government's failure to address Britain's access to affordable credit in these straightened times and so reform our consumer credit market is not just failing families. It is feeding the legal loan sharks. Despite report after report showing how toxic their practices are, the Government continues to let such firms self regulate. It is a strategy as effective as letting turkeys organise Christmas. A Citizens Advice survey showed payday lenders are breaking twelve of the fourteen promises they made in their own Good Practice Customer Charters. Indeed, the suggestion of any action by the OFT has led to one firm to moan they could lose £10million in profits because they would be expected to "lend more responsibly".
Reform would be welcomed by cash strapped Brits - 93% of the public believe changes are needed in order to protect consumers from payday lenders and 65% support a cap on the total cost of credit. Instead of listening to the people, today's announcement shows how the coalition is actually making Britain the place for these firms to do business. Wonga may be celebrating today, but it is our nation's families and our nation's financial future that will pay the price of the Government's failure to end legal loan sharking.Suggest a correction