Wonga and similar web operations are nothing more than legal loan sharks
Errol Damelin, chief executive of Wonga, is keen to portray his online, high-cost lending operation as a dynamic internet startup doing Britain a service – a far cry from the grubby payday lenders and pawnbrokers that now blight our high streets (Wonga boss seeks due credit, 13 May).
While you report that "Damelin insists Wonga is highly selective about who it lends to", I suspect his customers would beg to differ. One got in touch with me to explain how Wonga granted him a total of 19 separate loans over the course of nine months. Finally, he was lent over £800 to be paid back in less than a month – despite the fact that, he says, Wonga knew his monthly salary was only just over £1,000. He claims that when he defaulted and tried to organise a repayment plan, Wonga failed to respond to his emails or calls for nearly five weeks, while the amount he owed almost doubled in value. Damelin paints Wonga's technology and data as cutting-edge, but it failed to pick up that this client had simultaneously taken out loans with a dozen other payday lenders as he desperately sought to juggle repayments.
"How much business Wonga is doing remains under wraps," you report. That's no surprise – over the last 18 months the payday loan industry in Britain has quadrupled. Companies like Wonga are taking advantage of a perfect storm in consumer credit, where more and more people are struggling as the cost of living soars and mainstream banks withdraw from the market.
Wonga claims, you state, that "it helps if you have a good track record of taking out unsecured loans and repaying them on time", and that APRs distort the true cost of a loan. Yet profits in this industry rest on repeat lending to customers, so that rates varying from 334% to 4,000% or more can then be applied on interest accrued. Damelin is keen to "fight back against perceptions of his business as a predator exploiting the desperate and destitute". But growing evidence shows how many find borrowing from these firms not a short-term fix but a long-term debt.
In March I organised a round table with academics, consumer groups and representatives of this industry to look at the case for regulation. You report that Damelin's Westminster critics "refuse to meet him", yet curiously his public affairs representative told me the entire company was unavailable that day. On Twitter I have been asking @wongaman to account for this discrepancy too, but he has been uncharacteristically silent.
Like many companies involved in selling high-cost credit, Wonga is taking advantage of the UK's lax regulation to expand aggressively, as is its competitor, The Money Shop, which is flooding UK high streets. I've tabled an amendment to the finance bill to compel the government to consider legislating for caps on the costs of credit and so ensure British consumers enjoy the same level of protection as in America and Europe.
As the numbers in debt to these firms grow, it's time to turn the tide against legal loan sharks and ensure borrowing is affordable for all. Ask your MP to back these proposals and give Wonga something to really go quiet about.