Wonga chased debt with fake lawyers, says FCA
bbc.co.uk
bbc.co.uk
I'm confident that even in the US you could expect a hefty fine if you made up fake law firms wholecloth, though.
Edit: I see I'm not the only one thinking this: http://www.taxresearch.org.uk/Blog/2014/06/25/wonga-committe...
The phrase caveat emptor arises from the fact that buyers often have less information about the good or service they are purchasing, while the seller has more information. Defects in the good or service may be hidden from the buyer, and only known to the seller. Thus, the buyer should beware. This is called information asymmetry.
from me:
Payday loan companies target the least educated, least financially sophisticated and most vulnerable members of society. Should society step in to protect these members of society?
What about this: Should you let me, a smooth talking prick, put a brass plaque on the wall and convince your aging Mothers and Grandmothers to invest in my 2&20-fees option fund? Should you regulate my behaviour? Is it their fault for not understanding or my fault for taking advantage?
Wonga started out as an iPhone app. No one with a luxury smartphone is actually poor - just bad at managing cash flow. Hence the original term payday loan.
++ Included phone is free as long as you commit to spending far more than any normal person's call and data charges with the network you contract with. Minimum period 2 years. Early exit fees apply. Call charges and other fees may be increased during the term of your contract. Phone will be unlocked on request at the end of your contract period subject to additional fee. Ts & Cs apply, but for some reason the normal comparative disclosure obligations for companies offering other financial services don't.
I'd prefer the companies to offer a rigorous debt management interview before offering credit. People get budgeting advice; are told how to switch utility provider; are advised if they're paying over the odds for anything; trained how to budget; and then given a short term loan to help them.
There is a lot of scummy behaviour at this end of the market. "Cash for gold" pays well below the rate; doorstep loans are abusive; credit cards have high rates of interest; etc etc.
In England there is a niche for services and apps that help people learn how to budget and spend within their means.
Benefits and tax credits are very complex, and anything that helps naive people negotiate through those systems would be useful.
The Joseph Rowntree Trust did an investigation into doing these on a non-profit basis, and it would still need to charge over 100% interest.
I do care that most doorstep loans are deceptive about the cost of the loans; how to escape debt; etc.
There's a certain irony in that recently the rules for mortgages were changed to mandate more-or-less exactly that. AIUI, mortgage lenders now have a statutory duty to investigate whether a potential customer has a reasonable chance of repaying what they owe.
So, gone are the days of just lending some multiplier of a customer's self-certified salary/income -- which of course was always a silly practice, both for using a simple multiplier to gauge someone's entire financial power and for trusting self-certification. Today a prospective borrower can look forward to multi-hour interviews, sometimes reportedly going as far as asking people interested in mortgage-scale loans about how much they spend on hair cuts.
The irony is that for the kind of person taking out a mortgage that is anything close to within their means, having an extra hair cut is highly unlikely to make any difference to anything, while for the kind of person who is relying on payday loans, it might well be.
I don't understand the hatred for Wonga.
People have been condemning it as immoral since about 1,200 BC (vedic texts) and continue to do so in the present day.
When I visit Wonga [2] I am offered a loan at "Representative 5853% APR" and if that isn't usury, what is? (Wonga contend APR is a poor measure, as they charge a mere 22% in interest and fees over 18 days, which happens to be 5853% annualised)
About the only good thing you can say about Wonga is they don't literally break debtors legs.
[1] https://en.wikipedia.org/wiki/Usury [2] https://www.wonga.com/
It's like going to Avis to rent a car for a week and them having to quote you the cost for a years rental.
But that is of zero relevance here. The point is that when I make a loan the interest rate is based on the risk of default, not how quickly it will be paid back. The rate shouldn't go up just because it's a short-term loan.
Additionally, none of this loans are carrying enough risk to justify 5000% APR. This is pure extortion.
Don't be silly. People use Wonga because people need very short term loans. Full stop. Barclays, Lloyds, HSBC, Santander, RBS, etc, do not provide that service (and they won't).
I think a significant part of the criticism of Wonga and their ilk is that they advertise heavily toward a market who inherently tend not to be very good at financial management or aware of legitimate alternatives that might be available to them.
In other words, it's not clear whether a lot of people who use payday loan companies do in fact need very short term loans, as opposed to for example restructuring their long-term debts into more manageable forms with the help of their bank or mortgage lender, or asking their employer if they can have some temporary arrangement to help with an unexpected short term cashflow problem, or even just basic stuff like understanding how interest rates work so they pay down high-impact debts first or clear debts at higher rates before saving at lower rates.
Rather like putting the candy at children's eye height by the tills or advertising unsuitable but desirable products on children's TV, there might not strictly be anything illegal about what is going on, but it is surely systematically preying on the vulnerable.
I think a more telling example to the HN crowd would be: it's like asking a senior freelance consultant to charge only by the hour of "effective, proven work", taking a yearly salary of a junior coded divided by 50 weeks * 60 h/w = 3000, i.e. $25 -- and regularly demand free detailed estimates, to be sent signed within three-hours, at all hours.
Wonga difference to that (or leasing a car) is that they don't really switch you to a long-term plan when they see you'd rather need one.
The difference is that money is fungible, whereas a car is not. You can return the car and be done with it. In other words, the asset is Wonga can charge you for perpetuity if you don't repay the money within the agreement, and hence making 5000%+ APR applicable.
Tell me your thoughts on payday loan companies or car-title loan companies, please.
The fuss about Wonga and similar companies should not be about the high APR, but about their failure to scan out people with no hope of repaying the loan; the use of further debt to pay off existing debt; or extending debt.
These trap people into debt holes where they have no hope of escaping the debt.
The lender then repossesses the car if the debtor doesn't pay.
I don't think legal lenders typically do this. It's not nice, and it's not likely to generate positive word of mouth.
Therefore they target people who don't understand what the impact will be with slick marketing. These naive, often uneducated people are fooled into thinking they're only borrowing £10 to pay for nappies, but they're really borrowing the potential for financial catastrophe.
In a truly civilised society, pay day loans would still exist, but they'd be run as a special financial instrument of government, and be means tested with sliding scale interest rates and all profits would be put into educating these people about finance awareness.
This way the idiot who doesn't have the money to buy the next CoD on the day of release, but must have it, would pay a high interest rate, but the mother who needs nappies would maybe get the loan as specific vouchers at a much much lower interest rate.
Companies like Wonga should really be legislated out of existence. I am disappointed that a reputable VC like Index Ventures would want to be associated with a company like Wonga.