Wonga has messed up. It's lent to people who could not pay hundreds of percent interest rates. It's even lent to people who just did not have enough money at all. And it is writing off loans as a consequence.
I am pleased for those who are having their loans written off; that is obviously good news for them. But, this only corrects some particular injustices and not the systemic fault at the heart of this issue, which is of much greater significance.
The fact is that it is a scandal (a word I use rarely) that millions of people in this country have such limited access to financial services and credit when they need it tat they have no choice but resort to lenders like Wonga and Provide Financial whose rates, all can agree, are exorbitant, and whose credit recovery methods are wholly unacceptable.
There are very good reasons why most people in the UK need credit on occasion. The fact is that our UK wealth distribution is so skewed that the majority of households in the UK have little or no safety net if the unforeseen happens, as it, inevitably does. We used to have a 'social fund' to deal with the situation. it was, in effect, a state backed loan scheme for those in particular, and pressing current need at a time of crisis, which could in many households be represented by something like the need for a replacement cooker.
That social fund was abolished some time ago and now there is no way in which most people can access necessary essential credit at the time when they need it without recourse to payday lenders.
My suggestion then is that this is not a time to feel smug about the fact that Wonga has had its comeuppance: that was bound to happen at some point or other. What we instead need to be doing is to demand real, fundamental, changes in the way in which many people who have, for all practical purposes, no accessible savings can secure credit at times of crisis in their lives without having to resort to loan sharks, whether legitimised or not.
In a country that says financial services are its major source of wealth it is quite ridiculous that so many are excluded from affordable credit. If we cannot deliver this for the benefit of everyone what is the point of the City and all it does? And if the City cannot do it, then the state must. But to let the current dire situation continue is just wrong.
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I know of several in my parent’s generation that bought first televisions and furnishings with loans from their employers. There’s probably a few issues with employers as lenders, but on the other hand they would be in a good position to judge affordability.
And to recover loans very cheaply and cost effectively
Workplace based credit unions?
Seems like a nice idea in principle and there is the obvious current examples: up front purchase cost of an annual travel pass. With current work practices though, this can’t be the whole answer.
Issues I can see: People out of work, in temporary or casual work, or who’ve just lost a job. Embarrassment about sharing one’s financial situation with an employer. Undue pressure from an employer providing credit, even if this is only a perception.
It seems like something that would work well when things are going well, but might not help those in a difficult situation — people that I _imagine_ make up most of Wonga’s clients.
I have no doubt the state has a major role to play – via a social fund
Nice of wonga.
Maybe they can now call-off the debt collectors and bailiffs from their ex-customers.
But no, their ex-customers will still have to pay the various fees which the professional arm-benders of the debt collection agencies have generated.
Those who could afford 3500% APR, wouldn´t need to borrow!
So, by definition, those who borrowed from wonga et-al, are those who cannot afford to borrow.
All of them.
Couldn’t we set one of our nationalised banks to this task?
They know how important it is to get a little help when you need it.
What happens if they don’t pay it back? Will that then preclude them from future loans? The reason Wonga charge high interest is because of the risk of not getting it back. If credit unions or anyone else leant to the same customers they would need to either do the same or continually lose their starting capital.
This is why I suggest a social fund: recovery would be via direct deduction from benefits – at an affordable rate
There would be no risk so interest rates could be very low indeed and recovery costs would be minimal
Next?
Are people really going to want to suffer further deductions from their benefits though?
You’d rather they paid more to Wonga?
So people just borrow next week’s or month’s benefit payment? I suspect after they’ve done that they will then add a payday loan the following week. Also, would add another big complication to an already complex system.
Respectfully, I have got bored with your consistent wasting of my time and that of my readers
You should expect to be deleted in future if you continue with such pedantry
If wages reflected land/property prices adequately then there would less need for people to resort to credit so frequently. Credit is filling the wage/productivity gap while employers rely on housing benefit to prop up inadequate wages. Rent seeking is at the root of this. Thirty years, at least, of flatlining wages has allowed the loan shark to prosper.
As you say, Richard, b y any stretch this is a scandal. Sadly, the spiritual and moral narcolepsy of our culture has allowed this to happen.
Or maybe it’s land/property prices that are way off kilter due to land being hoarded. The true value of land should reflect what the market is prepared to pay to use it. From this perspective the housing benefit is propping up the inflated prices/rents.
richard , it seems shocking that the social fund was abolished – they are still advertising it which must be giving false hope to those people that need it most
http://www.nidirect.gov.uk/help-from-the-social-fund
There is false hope yes
The system is to complex to work when people need it
So they go elsewhere
That is a definition of false hope
And read this http://en.wikipedia.org/wiki/Social_Fund_(UK)
I think you are looking at a Northern Ireland web site
Richard, as far as I am aware, Budgeting Loans are still available via Job Centres and the Pensions Service for those in need and in receipt of certain benefits. They appear to be available for sums from £100 to £700 and will be deducted from benefits or pensions but will be interest free. It may well be that those with major financial problems have already exhausted this route and then turned lenders such as Wonga.
I guess you are aware that Wonga stepped well over the mark and it appears that false solicitors’ letters and debt collecting activity occurred – ie misrepresentation and fraud.
https://www.gov.uk/government/publications/the-social-fund-technical-guidance/the-social-fund-technical-guidance
I think those loans have now moved to local authority control – and are disappearing fast
Wonga issued false letters – like all our major banks
You might want to conduct a little private research about party donors and advisers brought into the DWP from the private sector, and their links the the subprime lending sector; not only with regards to the withering of the Social Fund but, in particular, in the light of specific decisions to impose an arbitrary delay on the commencement of benefit payments when a claimant becomes unemployed.
I say ‘private’ research, because publication would require careful consideration and a prudent man might receive the unwelcome advice – and a legal opinion – that it is better not to publish: being morally and legally in the right is never certain, except in the certainty of being very, very expensive.