Wonga’s Whoppas and other stories – a blog by Philip King
3 July 2014
There’ve been two ‘good news’ stories in the business pages already this week, and we’re only part way through, but they’ve been tempered by one horrendous story! On the payday lending front, new rules took effect from 1 July preventing multiple rollover loans and restricting the use of continuous payment authorities. At the macro economic level, a survey by Lloyds Bank reported confidence among small businesses to be at its highest since 2009. Alongside those positives, the use of fictitious law firms to issue threatening letters by Wonga was revealed.
I’ve long argued that the concept of payday lending is not inherently wrong and, when offered responsibly, meets a need that inevitably exists. But I’ve also argued that poor practice and abuse of customers must be stopped. The new rules impact on rollovers, continuous payment authorities and risk warnings. A loan rolled over twice, including before 1 July, cannot be rolled over again. Preventing people from turning high cost short-term credit into high-cost unsustainable long-term credit can only be a good thing. Stopping the abuse of continuous payment authorities where repeated attempts are made, often for very small sums so that payments are obtained when the timing coincides by chance, and leaving the most vulnerable without money for essentials is right. And the need for overt warnings about the consequences of non-repayment must be a pre-requisite. We don’t want to force people into the hands of unregulated loan sharks but we do want to create an industry that meets its needs responsibly and can hold its head high.
Leading me nicely to the Wonga story. Sending letters to people suggesting that legal action is being taken by non-existent firms, and to make things even worse, charging a fee for legal services that weren’t legal services at all is a disgrace. I was pleased to hear an interview in which Wonga recognised its actions were unacceptable and inexcusable, but does the punishment (in this case a fine) fit the crime? The letters were sent to people who would often be among the least likely to be able to recognise that they were being duped. The practice was abhorrent and if a criminal investigation is commenced (although it looks unlikely) the company will only have itself to blame.
To better news then from the Lloyds survey. Companies are more optimistic about the economy than they have been since the end of the recession in 2009, business confidence has reached its strongest level since 2008, and businesses have signalled that they intend to invest in hiring and capital expenditure over the next six months. Even better, there are tentative signs that a smaller proportion of companies are planning to increase prices which would lead to a fall in inflationary pressure. There are reasons to be cheered here.
Two steps forward and one step back then, I reckon, and that means we’re making progress!