Jonathan Ford has written a typical neoliberal article on the subject of Wonga in the FT. In it he argues:
The payday loan market has more than doubled over size in the past three years.
You would have thought that an analysis of poverty under the Coalition, linked to its wholly unnecessary attack on the poor would follow, but no:
One can legitimately argue that in providing such a service, companies such as Wonga are simply responding to consumer demand. People have the right to take on expensive credit if they choose. In that sense, it is no different to other harmful activities we permit, such as gambling or smoking.
Does he really think this is about choice in many cases? Do people really resort to usurious lenders by choice? Has the man never come across desperation? Apparently not. Setting the issue in the context of the Church of England's attack on Wonga he says:
Nonetheless, the idea of indiscriminately egging the public on to take out unnecessary loans at high cost is something that ought to make any right-thinking clergyman queasy. It is not just the vacuous consumption that is troubling; evidence suggests that plenty of those who take up the payday offer end up in a dismal debt trap. Simply making that credit a tad cheaper, as Archbishop Welby seems to wish, doesn't really deal with the problem.
So the trouble is the venal sin of desire. Does he not realise that is the desire to feed the children? Pay the rent? Have electricity? Pay for the school uniform? Does he honestly think that there is much freedom of choice by the time you have resorted to Wonga? Apparently he does:
There are better ways for the archbishop to help the poor than for the church to dish Wonga. Those on the margins of society will always need occasional access to loans to help tide them over unscheduled expenses or interruptions in income. That these should be appropriately priced goes without saying. The real challenge, however, is not simply to shave the interest rate by a few points, but to ensure that those who take out loans do so in the full knowledge of the risks and with a realistic plan for managing them. This means two things: first, offering genuine advice to potential borrowers; and second, real assistance should things go wrong.
The article is callous and nasty. It's written by someone who obviously thinks people always have choice and free will. It's written by someone who does not know of the desperation of facing hungry children. Of someone who has not even bothered to inform himself of anything other then undergraduate market based economics and who has not bothered to find out that in the real world things don't work as he was taught - unless you're made immune from it by the largesse of accidental wealth.
The FT should be ashamed of itself for publishing such an article.
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“Those on the margins of society will always need occasional access to loans to help tide them over unscheduled expenses or interruptions in income.”
Once again we see a conclusion based on false and unexamined premises. There was a time when our benefits system recognised that the weekly benefits were for the normal expenses of life. Unscheduled expenses were met through exeptional grants – not loans- and the replacement of the vast majority of those by “loans” has significantly reduced the income and living standards of the very poorest.
The option of reinstating that system is utterly ignored in the quoted sentence: that is a familiar tactic. Exclude consideration of perfectly feasible ideas and then shout TINA.
There seems to be a massive problem of lack of empathy of people at the top with people at the bottom . If they spent some time with people who struggle to get by for a week on a total income which is similar to what they might spend on a restaurant meal it might even cause them to behave more responsibly and compassionately in their jobs .
How can this be achieved ?
There was the opportunity to force recipients of bonuses in state banks to do community service in a former mining town or town which used to have factories which their industry helped offshore as a condition of qualifying for the bonus .
A relative of mine was despite advice spending money like crazy during the good times and since the credit driven good times stopped rather abruptly got caught up with door stop lenders . Very frightening for her children . Fortunately as a family we were in a position to be able to help them .
The main stream banks did a pretty good job “helping” people who were not credit worthy to get into debt . Another example of complete lack of consumer protection from the Govt .
I wish she had accompanied me to Poland about ten years ago and seen that excessive consumerism and materialism which has been a characteristic of British society for the last three decades is not the norm everywhere .
It is alarming at times just how inhuman neoliberals sound.
The article says:
“One can legitimately argue that in providing such a service, companies such as Wonga are simply responding to consumer demand. People have the right to take on expensive credit if they choose”
and
“The real challenge, however, is not simply to shave the interest rate by a few points, but to ensure that those who take out loans do so in the full knowledge of the risks and with a realistic plan for managing them.”
Usual neo-liberal bilge about choice – on a par with telling someone who jumps of the Empire State Building that they’re as free as a bird to make all sorts of choices – until they hit the sidewalk.
The only freedom most of those who resort to Wonga is as defined by Karl Marx “Freedom is comprehended necessity”, and no amount of glossing by the neo-liberal chatterati, whose exercise of choice is usually over big decisions, such as which fine wine to buy for their daughter’s wedding, or which hotel to stay in in Monte Carlo, really should know when to keep their mouths shut.
Until 1854 there were anti usury laws in England. Instead it is proposed that credit unions compete with pay day lenders and to do so they will shortly be allowed to become a bit more like pay day lenders. Currently they are allowed to charge 2% per month (PM) but will from April next be allowed to charge 3% PM. If interest was limited to 2 %PM all round, it would get rid of the pay day vultures and irresponsible credit.
The problem is low and insufficient incomes , no amount of loans to those that find it hard to repay will solve this
Anthony Waterhouse ,
For the benefit of ignorami like me what changed in 1854 please ?
Gotta agree , a legal limit of 2% per month would put the likes of Wonga out of business .
Perhaps the only advantage with tolerating Wonga is that regulated loan sharks might be better than unregulated loan sharks who would surely fill any gap . A bit like the argument for licensing brothels .
Looking beyond those unfortunate enough to fall victim to vultures , a much larger section of the population are incapable of managing their money or evaluating financial products and commit to all sorts of things from loans to private pensions which are unsuitable for them .
The state does not pay a livable state pension or offer non-state workers access to a decent secondary pension scheme so they get forced into the clutches of financial advisors .
Some friends who are teachers tell me that kids are getting a better education than they themselves got 30-40 years ago and others who tell me the opposite is true .
I get the impression there has been a dumbing down and it looks like the products of this process are now entering Westminster .
I think numeracy is really , really poor in the UK and wonder whether this is by accident or design ?
Does the Govt want a nation of financially aware people or does it want barely educated compliant drones ?
A limit on interest was then in place, this was was repealed and no limit to interest allowed. There are limits to interest charged in Germany, Italy and parts of the USA.
As you point out, Richard, this article is written by someone who is philosophically and ethically illiterate! The notion of simple causality in choice is deceptive and ignores the real and manipulated pressures on people. Of course, the writer ignores the fundamental nature of neo-liberalism which is to impoverish people in the first place so companies like WONGA can grind them into the dust. No decent society would allow this – but our society is far from decent and the decline is gaining pace. To accuse hardpressed people of ‘vacuous consumption’ is clearly some form of projection of the writer’s own vacuity. Wonga is a phenomenon of debt peonage, serfdom and a financial sector’s obsession with real estate.
People won’t be taking out loans with Wonga for “vacuous consumption” but quite a few people are hardpressed now because of previous vacuous consumption .
A relative of mine and her husband’s spendthrift habits have affected everyone around them and ended in tears . The stress has caused their health to deteriorate . Fortunately as a family we have been able help them avoid their house being repossessed .
The eldest boy is bright and I hope to be in a position to help him go to university .
Stupidity is part of the human condition and we all suffer from it in one form or other but their present predicament was so avoidable which is incredibly frustrating and I don’t think their case is that unusual .
The materialism , conspicuous and vacuous consumption of the last three decades has been obscene .
Agreed – we are now realising, in a different form, Fritz Lang’s Metropolis!
I haven’t watched that film yet . Perhaps it’s time I did .
Any right thinking person must have sussed by now that if they try and do the “right thing” by saving for their old age it’s only going to be taken off them and transferred to those who didn’t or couldn’t .
The “I’m all right Jack” strategy isn’t going to work .
We really are “all in it together” .
It’s funny that right-wing commentators are happy to tolerate any exploitative practice as long as they are not the victims themselves. Their morality lacks compassion and, it seems, they are only happy when someone else beneath them is suffering.
In the neoliberal world, we are no longer citizens but consumers and if we can’t spend (or borrow to spend) we are nothing.
It’s easy to believe that everyone in the world can routinely make comfortable and disinterested decisions when you yourself are disinterested in the rest of the world – and quite comfortable with that.
It is important here to distinguish between:
1. The concept of ‘payday loans’ (and all other loans).
2. The regulation of the implementation of that concept.
3. The actual implementation of that concept.
Wonga (and others) must of course comply with the law. It is not their role to have a ‘moral’ stance. The ‘moral’ stance must be defined and enforced through laws and regulations apointed by democratic processes.
The arrangements to allow lenders to cover operational costs, risk-of-loss and profit should be re-engineered (by laws and regulations) to be ‘up-front’ and transparent as follows:
1. The interest rate on each rolling balance should be set to a ‘base’ rate which should be set by the state to the rate of inflation. Thus, in effect, each rolling balance would be inflation-linked to maintain its value over time (i.e. a level-value playing field between lender and borrower).
2. All charges to cover operational costs, risk-of-loss and profit (on top of inflation-linked ‘capital’ as above) should be incorporated into a high-visibility front-end charge associated with each loan. After all, ALL of the risk of default is incurred at the instant each such facility is committed by the lender. The high-visibility front-end charge associated with each such facility should be presented as the most prominent ‘highlight’ in the borrower’s record of that facility (e.g. we pay you £100 now – You pay us £125 in 20 days time – end of). All spurious ‘front-end sweetners’ (e.g. ‘low-charge’ periods), and ‘back-end charges’ (e.g. tie-ins, charges for early termination, and charges associated with delinquency) should be outlawed.
These measures would deliver the following benefits:
1. They would deter borrowers from borrowing beyond their means (because all charges would be fully-levied ‘up-front’).
2. They would deter lenders from lending beyond the means of their debtors (because they would know that they would not be able to levy any charges beyond those fully-levied ‘up-front’).
3. They would prevent debt from spiralling out of control.
4. They would pre-empt the need for a ‘debt management’ industry.
I dispute it is not the role of Wonga to have a moral stance
Why should a company be set up for an immoral purpose?
Richard,
Whose morals are we going to use as the frame of reference here? Yours? Why? Do you believe you ‘have god on your side’, or do you just believe that your opinions take precedence over the opinions of all others?
I believe that there is no absolute ‘right’ or ‘wrong’ in civilisation (except in the minds of religeous fundamentalists, and the deluded who presume to know better than the rest of humanity). I will not inflame this debate by referencing the appalling atrocities inflicted on others by those who presume to ‘know’ what is ‘right’ and ‘have god on their side’, and ‘know’ what must be done by those who ‘know what is right’ to those who beg to differ.
I happen to believe in democracy, with ‘right’ and ‘wrong’ defined by democratic processes; in the form of the rule of law and democratically-appointed regulators. If you believe that your beliefs and ‘morals’ take precedence over the insights of the rest of civilisation, then say so. If not, please do not presume to sole knowledge and ‘ownership’ of the moral high ground. I have phrased my insights in the form of proposals to change the relevant laws and regulation; to be considered by democratic processes. I suggest you do so too.
Tim
I am engaging in debate within the democratic process
To work that process is dependent upon such debate
By debate the moral stance that is chosen democratically is developed and changes
All I am seeking to do is change that understanding of morality. That is my right. All progress is dependent upon people exercising that right
Why do you have the arrogance to presume anything else?
I don’t
Richard
If you believe that Wonga is failing to comply with democratically-enacted laws and/or regulations, lecture the democratically-enacted regulators and police (and Wonga).
Otherwise, if you believe that the democratically-enacted regulators are not enforcing democratically-enacted laws, lecture the democratically-enacted regulators.
Otherwise, if you believe that the democratically-enacted laws are inappropriate (on moral grounds or whatever), lecture the democratically-enacted politicians and law-makers.
But do not presume to lecture Wonga simply because they affront Richard Murphy’s moral code. That is arrogance. That’s the logic of tyrants and the Taliban. It is certainly not democracy based on the rule of law.
By your logic slave owners should not have been lectured about the immorality of their actions
Is that what you are saying?
When companies enslave people with usurious debt are you saying that is a moral act if the law permits it?
By that standard are you saying apartheid was moral as it was legal and we should not have opposed it?
I believe what he’s saying is if you have a problem with the law, pick on the law, not the people who comply with it. Slavery and apartheid is slightly different to charging high interest on debt in any event.
Respectfully, slavery and apartheid are methods of enslaving people
So is usurious debt
They cannot be differentiated in my view – all are methods of exerting economic control of people
And to claim a person who abuses moral principles that happen to be legal is innocent of any act requiring criticism is absurd – all change is predicated on observing specific acts that require legal remedy and highlighting them as the causal need for change
Your arguments make no sense
Respectfully, slavery was about more than economic control. Being declared bankrupt is in no way comparable to being someone else’s property and subject to violence and hard labour and any suggestion to the contrary is seriously offensive.
The poster is saying you should hold governments to account for the laws they enact, rather than holding to account the people who comply with them. I don’t see how that “makes no sense”. In constraining companies like Wonga all you will achieve is driving people in debt into the arms of criminal loan sharks, in my view.
And respectfully – I think you are simply apologising for economic abuse – just as the apologists for slavery did
Then you are wrong, Richard. We are not apologising for it, we are saying aim your attacks elsewhere. Very big difference. I really think your comparison to slavery is highly inappropriate and grossly offensive.
And I do not think it wrong
If you take offence go and look at that industry and what it does
Richard,
Slave ownership was not stopped by ‘moral maze’ lectures aimed at slave owners. Apartheid was not stopped by ‘moral maze’ lectures aimed at the ruling elite in apartheid regimes. Slave owners and traders, and apartheid rulers, were immune to such lectures. Such practices were ended by changes to the UK and international laws by UK and international lawmakers, and by the sanctions of UK and international enforcement agencies. The activists who made the most significant contribution to those changes were those who directed the ‘moral maze’ arguments to the UK and international lawmakers.
Usurious debt practices (and tax havens, secrecy regimes, etc.) will not be stopped by ‘moral maze’ lectures aimed at the bad guys. Bad guys are immune to such lectures. Bad guys and bad practices will be ended only by changes to the UK and international laws by UK and international lawmakers, and by UK and international enforcement agencies. The activists who will (eventually) have made the most significant contribution to the changes required will be those who will have directed the ‘moral maze’ arguments to the UK and international lawmakers, and those who will have done the required ‘process engineering’ to achieve the desired outcome (‘moral’ or other).
When you ask me ‘are you saying that (an act) is a moral act if the law permits it?’, I am at a loss as to how to answer. Your question begs the ‘higher’ ‘moral maze’ question as to whose moral compass is to be used as the frame of reference for the question, debate and answer? That is not a debate I wish to join, because it goes nowhere. I believe that there is no such thing as ‘absolute’ morality. All those who believe they have a worthwhile moral compass, and wish to impose that moral compass on others (such arrogance), are entitled to make their case through democratic processes to the UK and international lawmakers. If they succeed, then the resultant laws and regulations will define ‘relevant’ or ‘democratic’ morality (which will vary over time and from place to place).
I am looking for a way through this ‘moral maze’ issue, and suggest that active engagement through democracy requires two distinct types of campaigning:
1. The objective of the first type of campaigning is to generate a sense of ‘unfocussed outrage’ amongst the general population; unfocussed because the general population are not inclined to ‘engage with’ complexity; outrage because that’s the only way to make venal politicians take notice. This first type of campaigning involves doing whatever it takes to get the issue onto the front pages of the popular media. Intellectual content gets in the way here. Just take over St Pauls, or throw yourself under a royal horse, lie blatantly (and move on quickly), illustrate your message with disfigured children in wheelchairs (regardless of relevance), sob, shout ‘up with this we will not put’, block normal activity, create monumental inconvenience to innocents, shroud wave, be economical with the truth (or even deliberately misrepresent the facts), get John Humphries to interview your opponents, resort to civil disobedience (and get arrested breast-feeding a baby in front of the world’s media). Some will even resort to terrorism (anti-abortionists, animal rights activists, advocates of radical religion). Your ranting at Wonga and tax avoiders fits into this category.
2. The objective of the second type of campaigning is to focus the sense of ‘unfocussed outrage’. The activists who will (eventually) have made the most significant contribution to the changes required will be those who will have directed the ‘moral maze’ arguments to the UK and international lawmakers, and those who will have done the ‘process engineering’ required to deliver desired outcome (moral or otherwise). Most of your other campaigning fits into this category.
If you wish to continue with the first kind of campaigning, please, please, set up another ‘ID’ for it. Mixing the first kind of campaigning with the second type of campaigning undermines the credibility of your overall effectiveness.
Tim
Utter nonsense
First, you may have noticed I do target legislators and regulation. I have now written two private member’s bills in this parliament.
Second, change does not happen in a vacuum: there has to be understanding of the need for it. So highlighting the abuse is essential.
To divorce the two is absurd: change cannot happen unless the abuse is understood.
You are promoting a logical fallacy.
Which is why I will happily ignore your advice.
Richard
Tim Knight ,
Interesting ideas , I like your proposals that :-
– that penalties cannot be levied for delinquency
– of separating the interest from charges
It never made sense to me that a lender would not lend to a person/company/country at X% interest but would lend at X+5% interest or in the case of pay day lenders X+2,398% interest .
Lending for non essentials looks mainly to have been a phenomenon of the last 30 years and at the risk of sounding puritanical people didn’t do so badly without it before that . I think measure 2 would kill it stone dead along with “let them eat credit” .
Whilst charges and potential profit could be front loaded , accounting practices might need to be changed to ensure that profits aren’t recognised and commissions paid prematurely .
Taken together your measures would make it much easier to compare financial products .
Regarding measure 1 , I assume by you mean that depositors deposits should be inflation linked . I like the case for making banks become more of a conduit between depositors and borrowers but am not sure whether it is practical to take it quite as far as you suggest . What do you think Richard ?
If costs exceed charges or more borrowers than are expected become delinquent , or more fraud takes place than expected , how will it be possible to protect deposits against inflation ?
If volume of lending is lower than deposits , how will it be possible to inflation link deposits ?
Tim Knight
P.S. there would be implications for credit card companies .
Sadly I don’t think the powers that be would ever allow your proposals . Can you cite any examples from history when similar measures were tried ?