If ever there is a company representing the most abhorrent and vile aspects of modern Britain, Wonga is surely it. Today, I make the case for taking the fight to payday loans companies which represent the financial sector at its very worst. The time has come, I argue, for a state-run alternative to Wonga.
Wonga is a company which offers short-term, high interest loans. The application process is quick, easy, and comes complete with fun and happy animated characters. Given the enormity of the interest rate, however, only those who have exhausted all other visible avenues need apply. The process which leads to people needing to apply for a Wonga loan is anything but fun and happy. Nor are the huge charges imposed by the company should you miss a repayment.
The Internet is full of stories like Yomi's, Having defaulted on his mortgage, he tells The Guardian, he found himself in the desperate situation of needing to pay for the university accommodation of his eldest child. The high street banks could not offer him credit, so he took out a £400 Wonga loan for 35 days, with a repayment of £545.48 to be taken out of his account automatically the following month. Yomi eventually needed to borrow from other payday lenders to repay the Wonga loan, and calculates that he has now paid £1500 to lenders as a result of the original £400 debt.
When asked of his experiences, he says
I worry about it all the time. Especially when we come to payday. I have sleepless nights. It made me start drinking for a stage until I realised that drinking was costing me more money. I haven't told my son. I'm trying not to push my anger on to my kids. I go into my shell, into my room.http://www.theguardian.com/business/2012/mar/01/wonga-real-cost-payday-loan
Needless to say, for the tax-avoiding suits behind Wonga there is no such misery. With pre-tax profits of £62.4 million for the past financial year, life is looking good for Wonga founders Errol Damelin and Jonty Hurwitz, who are living in the lap of luxury in £million+ residences.
Wonga's profits potentially come at the expense of contributing to British hospitals and schools. According to Corporate Watch, Wonga has moved tens of millions of pounds of assets to Switzerland, which has a much lower tax rate than the UK. This potentially offers the company "significant" savings. According to Wonga, unsurprisingly, there
was no attempt or intention to reduce our UK corporation tax liability through these, or any other inter-company transactionhttp://www.corporatewatch.org/?lid=5065
The human suffering that results from the charges imposed by companies such as Wonga does not need to be. Something can be done. This is a role the government can and should take on.
So long as the demand for cheap credit exists, more is required than the frankly tepid approach the government has taken up to now. Whilst the government is presently moving to cap the costs that payday loans companies can impose, we should perhaps not expect more consequential action to be taken. The Mirror has reported that major Conservative Party donor (over £593,000 in recent years) Adrian Beecroft is a major beneficiary of Wonga's financial success. As chairman of Dawn Capital, which holds a large stock in Wonga Group, Beecroft has stood to reap huge financial rewards from payday loans. http://www.mirror.co.uk/night-copy/wonga-the-men-who-made-50million-830110#ixzz2qkoJnCgN
What is needed is a visible alternative to Wonga and the payday lenders. Presently credit unions exist as an alternative to payday loan companies for some, however they do not have the advertising power and ease-of-use that financial giants like Wonga have. Wonga needs to be defeated on its own terms, by a quick-and-easy model which offers 'payday loans' on a more ethical basis.
Ultimately, people seek out these loans because they urgently need the money, and this need must be addressed.
What is the point of government, if it is not to protect its citizens from the fear of homelessness when faced with alarming bank charges, from the dread of the creditor's knock-on-the door that comes with the debt trap, from being unable to buy your children books for school or food for breakfast because of frightening debt repayments?
It is time to outlaw short-term, high-interest loans companies. A visible, Wonga-like alternative is required to prevent door-to-door loan sharks from being the beneficiaries of such a move. The government needs to step in with a simple, well-advertised, ethical model for alleviating temporary cash-flow problems for those in need.
A government short-term loans company would not be a profit-making enterprise, so would be able to set interest rates at a more reasonable level which would allow it to break even without extracting huge profits from its debtors.
Like Wonga, the loans would be used to alleviate short-term financial difficulties. Like Wonga, the system would be simple and easy to use. Unlike Wonga, there would be no tax avoidance, no high-life executives living lavishly at the expense of the poor, and no fear-inducing bank charges.
It is high time to stop the flow of cash to the suits behind payday loans companies. It is time for a humanitarian alternative to payday loans companies. It is time for a war on Wonga.