Sort things out with wonga.com? Perhaps not, says Florence Strickland
It could be said that a recession, a ‘coalition’ government and its subsequent austerity measures have left a lot of people financially, not to mention spiritually, fragile. In the face of this the rise in advertisements for payday loans, playing on the financial difficulties of many, have increased. In 2011/12 it was estimated that 8.2 million loans were granted to individuals.
It might be useful to add here that Wonga.com ’s interest rate is an eye-watering 5,853% representative APR
The detrimental nature of payday loans lies in their crippling interest rates. With its catchy advertisement scheme, Wonga.com could probably be recognised by many regular television viewers. The advertisement is bright and friendly, as is the website. It proudly reports that 98% of customers confirm that their website is easy to use – fundamental financial information. Indeed, one simply chooses the amount to borrow and is directed to a page to fill out personal information. At this point we are reassured that we only need ‘6 minutes’ to make our decision – the cash will come in 15. It might be useful to add here that Wonga.com ’s interest rate is an eye-watering 5,853% representative APR (July 2013).
The 2012 report by The Office of Fair Trading asserts a clear motion to address the shady practices of payday lenders, requiring them to act more in the ‘spirit of the law’. However, a good businessman would not simply behave better by request. Laws rather than warnings must be enforced in order to create decisive action and direction to protect the concerns of the consumer. Between 2008 and 2012 the total value of loans rose from £900 million to between £1.7 and £1.9 billion. This value was distributed between only 240 lenders in 2012. In its defence, the Payday Lenders Industry claims research confirms that 56% of their customers had prevented a one-off difficulty becoming a financial crisis. However, Which? Magazine’s research quoted 70% of customers regretting taking out their loans. ComRes/R3, a polling and research consultancy, found that 48% of people thought that they had made their financial situation worse by taking out a payday loan. The figures obviously do not match up.
The 2012 report by The Office of Fair Trading asserts a clear motion to address the shady practices of payday lenders, requiring them to act more in the ‘spirit of the law’. However, a good businessman would not simply behave better by request. Laws rather than warnings must be enforced in order to create decisive action and direction to protect the concerns of the consumer. Between 2008 and 2012 the total value of loans rose from £900 million to between £1.7 and £1.9 billion. This value was distributed between only 240 lenders in 2012. In its defence, the Payday Lenders Industry claims research confirms that 56% of their customers had prevented a one-off difficulty becoming a financial crisis. However, Which? Magazine’s research quoted 70% of customers regretting taking out their loans. ComRes/R3, a polling and research consultancy, found that 48% of people thought that they had made their financial situation worse by taking out a payday loan. The figures obviously do not match up.
However, Which? Magazine’s research quoted 70% of customers regretting taking out their loans
Despite this report in 2012, on 1st July this year the Government have only just held a summit with Payday Lenders. They looked at the regulation of the sector, as they are rightly concerned that the public may not be getting a fair deal. The summit focussed on advertising and its effect on consumer behaviour, rollers and affordability checks. Surprisingly a cap on charges was rejected, surely a clear way of managing companies whose commitments to the codes of practices that they signed last year are in doubt.
Without a cap, perhaps one of the key measures would be to reduce the wealth of advertisement schemes. This would show a clear move to prevent the public resorting to payday loans that require borrowing money at extortionate interest rates in an attempt to get by. The Financial Conduct Authority (FCA) will be in charge of the regulation of payday loans from April 2014. It has been made clear in the conclusion to the 1st July summit that controlling advertisement of the payday loan sector will be a key way to monitor and regulate consumer participation.
With the clear rise in those taking out payday loan policies it is evident that they are incorrectly seen as a solution to financial difficulty. Of course, the statistics show that their ability to resolve financial issues is low and more often than not they create further strain and complication. Some of these complications may not be made quite clear, especially with the alarming and increasing awareness that payday loan companies do not always operate within the confines of the law. The FCA give advice on the malpractices of these companies on their website. They warn that card issuers have been refusing to cancel payments through continuous payment authorities. Thus, customers who sign up to direct debit payments may be charged despite attempting to cancel a continuous payment scheme. This is just one example of the freedom with which payday loan companies have to operate, much to the detriment of their customers
Without a cap, perhaps one of the key measures would be to reduce the wealth of advertisement schemes. This would show a clear move to prevent the public resorting to payday loans that require borrowing money at extortionate interest rates in an attempt to get by. The Financial Conduct Authority (FCA) will be in charge of the regulation of payday loans from April 2014. It has been made clear in the conclusion to the 1st July summit that controlling advertisement of the payday loan sector will be a key way to monitor and regulate consumer participation.
With the clear rise in those taking out payday loan policies it is evident that they are incorrectly seen as a solution to financial difficulty. Of course, the statistics show that their ability to resolve financial issues is low and more often than not they create further strain and complication. Some of these complications may not be made quite clear, especially with the alarming and increasing awareness that payday loan companies do not always operate within the confines of the law. The FCA give advice on the malpractices of these companies on their website. They warn that card issuers have been refusing to cancel payments through continuous payment authorities. Thus, customers who sign up to direct debit payments may be charged despite attempting to cancel a continuous payment scheme. This is just one example of the freedom with which payday loan companies have to operate, much to the detriment of their customers
They manipulate the effect advertising has on consumer behaviour to present borrowing at high interest rates as a quick and satisfying solution to financial difficulty
It is clear that payday loans have fallen through the loop of government regulation and monitoring. The government have not been quick enough to restrict payday lenders within tightened laws, who profit from the financially vulnerable. These lenders continue to profit from a nationwide financial dip, often mercilessly skirting the law. They manipulate the effect advertising has on consumer behaviour to present borrowing at high interest rates as a quick and satisfying solution to financial difficulty. Why the reaction by government authorities to something so clearly unlawful has not been more immediate is baffling. However, it can be seen that at least steps are being taken to crack down on the loopholes in these schemes to protect consumers in the future.