I wrote about Wonga yesterday, saying it looked to me like it had committed a fraud, using the plain English interpretation of that term. I did not suggest criminality: fraud can be wrongdoing without being criminal.
Some said I should have referred to the Farud Act 2006 when defining fraud: I happen to think much the same conclusion would apply but I was not looking for crime - I was looking for reason for sanction in that blog.
Others have offed the defence that the FCA could not prosecute because the offences occurred during the regime of the Office for Fair Trading. I find that very hard to believe. The Fraud Act was passed in 2006.
Paul Mason at Channel 4 News reckoned action could have been taken under the 1970 Administration of Justice Act which says that its an offence to harass people by producing documents that look official but are not.
But actually, I refer back to my comment that this looked to be a fraud, whether criminal or not and suggest hat the FCA must have been able to do more even without prosecution. It could have taken action against those responsible by removing their status as 'fit and proper people' but I have heard of no such action. It could have reviewed Wonga's credit licence. It must have power to do that. And it could have pursued lines of enquiry such as that Paul Mason suggests even if a fraud prosecution was not possible. Amd it could have required that the compensation reflect the usurious interest rate Wonga charges its customers by adding such a sum to the late payment of compensation and refunds of overcharges.
It appears to have done none of those things. It has instead required payment of a small payment (£50 a person) to each customer impacted.
Is that really enough for an illegal threat (which it appears to be)?
And what will happen to the payments due to those Wonga cannot trace - and there will be many of them who have moved since the threats were made? Will Wonga have to pay if it cannot find those impacted?
I suggest that the payment to be made is ludicrously low in light of the distress Wonga must have deliberately caused. This compensation needs to be reviewed. It appears to me that an attitude of 'they were only little people with little loans' may have prevailed here, and that's wrong. These were highly stressed people with what were to them massive loans that they were unable to repay because of the usurious nature of the loan relationship they had little choice but resort to. They need more protection than most - not desultory treatment.
So too then does the failure to impose a penalty need to be reviewed.
And the moral hazard implicit in Wonga managing the compensation process has to be addressed.
But more importantly I think this process undertaken by the FCA has to be thoroughly reviewed. I first wrote on the abuse within the door step loan industry in 2003 when I prepared the first estimate of the real interest rates then prevailing in it (which were much less than those changed now). Since then regulatory failure after systemic failure has occurred of which this is just the latest. Stella Creasey has done a good job exposing this but the systemic failing remains that treats these loans as a Cinderella issue.
No, they are not. They are of massive importance to those involved and the real economic abuse and potential for profound psychological harm inherent within them remains below the regulatory radar. That has to change. Failing to impose significant penalty on Wonga is indication that change has not happened. And that should be the precursor for real action now.
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The very best thing that an incoming Labour Govt could do would be to close down the idea payday loan sector and replace it with a state-backed low interest lender – an expanded social fund, essentially. Although if the basic income proposal which we sketched out for CLASS was put into operation demand for payday loans would decrease massively anyway – they are largely a symptom of the fact that the benefit system is absolutely full of holes and in chaos, so people go to these legal loan sharks when they have nowhere else to go to. The Walthamstow MP Stella Creasy has done some really good work exposing these people.
I suggested the need for such a lender way back in 2003
I thought it was a criminal offence to impersonate a lawyer, surely one (or many) of those who suffered at Wonga’s hands can come forward and report this to the police?
The whole financial system is based on fraud -so when it happens it now appears normal. In his book ‘The Death of the Liberal Class’ Chris hedges talks about how the mores of the erstwhile Liberal Class have been neutered by stealth and become morally numb. Those that govern are wealth siphoners themselves and are 100% incapable of the imaginative leap required to feel empathy.
In addition to the points you make in your blog, Richard (such as these are only loans to “little” people), I suspect that one of the primary reasons why so little action has been taken against Wonga is for the same reason that little was taken against G4S, A4E and so on: there is now a deeply entrenched disposition (ideological bias we might also call it) within and across the whole of government, and government agencies, and indeed a good deal of local government as far as I can see, to accept “sharp/dodgy practices” as part and parcel of the neoliberal model of government and public service. In short, its now part of the culture of these organisations. I’m also sure it’s part of the disposition of many of the people involved in regulation, particularly at the likes of the FCA, given their background.
Remember, we have government departments and public bodies that are now run by scores of people who have been brought up on the mantra “Private good, public bad”. And with a government in power that’s an ardent believer and obsessive follower of that mantra, even if an individual doesn’t agree it certainly doesn’t pay to let anyone know that’s so.
I agree, Ivan; there has been a normalisation of scam, rip-off, card sharping and dodge with the people in power mired in it. There is a sort of ‘cheekie chappie’ wink when these organisations scam the general public. The decay and desuetude of our culture leaves a putrid stink in the air.
The Guardian is now saying that the fake law firm letters have been passed to the polive for a Criminal Investigation, so perhaps some action will be taken against this wretched company.
Interstingly, in the same article, it states: “The use of fake law firms was uncovered by the OFT in 2011, after Wonga was asked to disclose information about its debt collection practices.”
So why didn’t the OFT take action in 2011? Why is Wonga even still allowed to be in business 3 years down the line? Nothing to do with the fact that it’s founder has made substantial donations to the Conservative party I suppose?
Or maybe its because, as they dismantle the welfare state and drive more and more people into the arms of the payday loan companies, this is exactly what this government wants. The replacement of a state welfare system by a private one. Another example of the ‘private good, public bad’ idiocy that Ivan has already noted. So we now have record numbers of people living in debt, and indeed dependent on it just to get by, and a whole industry that exists to service this.
Bit of an irony really when you consider how the right’s beloved Maggie liked to lecture us all on how we should all live within our means. More than 30 years of Thatcherism and this is the result.
Good comment
Thatcher lied to us about ‘trickle down’, though I imagine her and Dennis (oil industry man) knew exactly what they were doing as banking deregulation had been carrying on apace since the late 60’s and bank asset percentage of GDP started to logarithmically rise after 1965 to reach the 500% of GDP it now is.
I suggest the real reason for leniency might be found here Top Tory Funder Runs High-Cost Loans Company. One law for us, cosmetic law at best for them.
“they were only little people with little loans”. Exactly.
Leona Helmsley, “taxes are for the Little People”, should forever be lauded and remembered for saying exactly what the ruling elite think of the peasantry (that’s the remaining 99% of us).
It appears that SRA issued a warning notice a year ago pointing out situations where improper debt collection has occurred. These specifically refer to deception and misrepresentation and must apply to the debt recovery actions which Wonga were alleged to have adopted a few years ago.
http://www.sra.org.uk/debtrecovery/