Not a shred of shame Guy Adams
With interest rates of up to 5,853 per cent, payday loan firm Wonga was a byword for greed and exploitation. But now it’s collapsed – and its victims face losing compensation – has there been a word of contrition from the founder who took £17 million out
Children as young as 12r eceived letters offering them loans
WHen filthy-rich men like errol Damelin need ready cash, they steer well clear of payday loan sharks, with their crippling interest rates, dodgy business practices and punitive late payment fees.
To help raise the £3,630,000 it took to buy his mansion next to north London’s Hampstead Heath, where a gleaming McLaren supercar sometimes sits in the drive, the balding 49-year-old businessman got a mortgage from Barclays Bank.
It was a canny move. Had he borrowed even half the purchase price from his own company, Wonga — which at one time issued payday loans at an extortionate 5,853 per cent aPr — and repeatedly failed to repay it, Damelin would now be on the hook for a whopping £1,400 trillion pounds.
even for someone whose net worth was then estimated at a lofty £35 million, that might have been a stretch.
Since buying his swanky pile five years back, Damelin seems to have done very well indeed. Following something of a rebranding since leaving Wonga in 2014, he now describes himself on Twitter as an ‘ entrepreneur and early stage technology investor based in London’.
a hagiographic profile in the City magazine Business Insider last year said he’d recently injected cash into some 32 start-up firms, dubbing him ‘ one of the most important and influential figures in the uK tech sector’ adding ‘he is now — arguably — the messiah of London’s fintech [financial technology] scene’.
But that was then. Fast forward to this week, and many ordinary Britons would regard Damelin as the polar opposite of a messiah.
To blame is the collapse of his most notorious creation, the aforementioned Wonga. It fell into administration on Thursday, paying the ultimate price for toxic business practices that saw it become a byword for greed, exploitation and spivvery on his watch.
The once-booming credit firm lost more than £140 million in its last two financial years, thanks to a surge in compensation claims from tens of thousands of disgruntled former customers.
Many were mis-sold loans at extortionate interest rates when Damelin was boss.
Wonga had, in truth, been on the ropes since 2014, when it was forced by the Financial Conduct authority (FCa) to write off a staggering £220 million of loans issued to 330,000 often-vulnerable borrowers ‘ without taking adequate steps to assess customers’ ability to meet repayments’.
It then emerged that Damelin’s reign had also seen the firm harass thousands of customers who fell behind with loan repayments by sending them highly-threatening letters from fake law firms.
Having been found to have engaged in ‘thuggish’ behaviour by the FCa — one recipient of the sinister scam letters was a woman in hospital recovering from a miscarriage — Wonga was told to pay £2.6 million in compensation.
For a time, the episode was the subject of a police investigation, though it was decided there was insufficient evidence to take things further. They weren’t the only ugly crises that jollified Damelin’s reign. Several of Wonga’s TV adverts were banned, for misleading customers, while children as young as 12 were mistakenly sent letters offering loans.
Wonga employees set up fake Twitter accounts calling a female MP who campaigned against the firm mentally unstable, and edited the firm’s Wikipedia page to remove references to its various sharp practices. Wonga was also forced to apologise for ‘unintentional system errors’ which saw thousands of loan balances miscalculated.
Four years of fallout from these and other scandals, combined with the effect of new laws designed to protect consumers, have now effectively driven the firm out of business. as of this week, it’s no longer issuing new loans.
Though few will mourn its passing, hundreds of employees, not to mention investors — who ploughed an extra £10 million of emergency cash into Wonga last month — face an uncertain future.
More scandalously, so are tens, if not hundreds, of thousands of Britons exploited by Damelin’s morally bankrupt former company over the 12 years it existed.
Compensation claims against the firm are now rising exponentially. It received 20,000 last year, according to the FCa, with 2,347 being escalated to the Financial Ombudsman Service (FOS) in the six months to last December. That’s a year-onyear increase of 250 per cent.
Many come from vulnerable people given unaffordable loans, which ought never to have been offered to them, or hit with extortionate late payment charges. Often, their lives were seriously damaged as a result.
at present, 53 per cent of FOS complaints against Wonga are being resolved in favour of consumers ( the industry average is 34 per cent) with the Ombudsman finding against the company in 178 of the 219 most serious claims which went to adjudication in the past year.
In most of these cases, the firm is being instructed to pay compensation. This is one of the main reasons its coffers are now empty. now it’s in administration, successful claimants will be forced to join a long queue of creditors.
In theory, these exploited citizens could end up receiving pennies for every pound they are rightly owed. and should Wonga fall into bankruptcy, it would cease to be regulated, making it impossible for new compensation claims to be made against it.
HunDreDS of thousands of other innocent victims of the company’s sharp practices (many regard mis- sold payday loans as the next PPI, a scandal costing financial institutions £32 billion so far) would therefore be left out of pocket.
all told, it is a disgraceful state of affairs. But, as so often, in the morally vacuous world of 21st-century cowboy capitalism, the man bearing much of the responsibility appears to have simultaneously banked a tidy profit.
not only did Damelin earn millions from his salary — in his final year alone, his package was some £970,000 including £700,000 for ‘loss of office’ — he also managed to extract a whopping £17 million by selling a portion of his stake as his reign unravelled.
The cash was raised in november 2013, shortly after
Damelin quit as chief executive (he stayed on as chairman for several months afterwards), when he sold 4.5 million shares in the company for £3.75 each. Damelin’s stock was held via a corporate entity based in the tax haven of the British Virgin Islands.
For reasons never properly explained, it was purchased by a trust set up by Wonga to pay bonuses to company employees. The shares, of course, will now be virtually worthless.
Unsurprisingly, Damelin has since been reluctant to discuss his £17 million tax- efficient payday, just as he’s never properly explained — let alone apologised for — his running of the firm and its treatment of many customers.
And thus far, there’s been no expression of contrition, from him regarding Wonga’s collapse.
It wasn’t always so: in the past he was only too keen to wax lyrical about the firm’s supposed success.
Founded in 2006 by Damelin, a former investment banker, and software developer Jonty Hurwitz (who left in 2013), the company styled itself as a trendy tech startup, targeting web-savvy borrowers neglected by traditional banks.
It rented offices next to Regent’s Park, in a period house owned by the Queen, offering employees what one reporter described as ‘glass- walled meeting rooms, luxury Nespresso coffee machines and even sessions in callisthenics, a workout with no gym gear’.
Customers were targeted by highly-aggressive ad campaigns, offering fast cash, via a number of extremely accessible mediums, including an iPhone app which was at one point being downloaded by 1,000 people a day.
Funds — typically a few hundred pounds — would then usually be wired to their bank accounts within 15 minutes, day or night.
In interviews, Damelin claimed he was an ‘ethical disruptor’ who was democratising the consumer credit market by providing cash to switched-on people who received an unexpected bill, or who needed to pay at short notice for minor luxuries such as a weekend away, or tickets to Glastonbury.
He said the firm was ‘not a job but a mission’ and branded customers the ‘Facebook generation’ who used loans as a sensible short-term fix to avoid unauthorised bank overdraft charges.
Wonga’s ‘secret sauce’, he added, was software which allowed it to analyse 6,000-8,000 ‘ data points’ about a prospective client in a matter of minutes before deciding whether to offer them a loan. ‘This is not about people being desperate,’ he insisted, saying he had ‘very few customers on benefits’.
The pitch seemed to work. In 2009, Wonga issued 100,000 loans. By 2011, the figure had risen to 2.5 million with profits of £48.5 million on revenues of £185 million. The following year, Damelin was named ‘entrepreneur of the year’ by the Left-wing Guardian newspaper.
SooN, Wonga began to push into South Africa, Poland, Spain and Canada. It talked grandly of being the next Amazon or Google-style tech giant, and told some of its 500 employees the firm could eventually be valued at £15 billion, making Damelin’s stake worth some £1.17 billion. A stock market flotation was widely mooted.
At the same time, Wonga launched ubiquitous TV adverts featuring a range of cuddly oAP puppets: Betty, Earl and Joyce.
Yet behind the scenes, things weren’t so cuddly. For the price customers paid for this convenience was, of course, sky-high interest rates.
At a time when official rates were 0.5 per cent, Wonga’s clients were taking out short-term loans (the usual terms were up to 60 days) at rates that, on an annual basis, were equivalent to between 4,217 and 5,853 per cent.
If they missed payment deadlines, further charges were exorbitant — and Wonga’s technology allowed it to suck cash directly from their bank accounts.
Soon, Wonga was the subject of heated controversy. The Archbishop of Canterbury branded it ‘morally wrong’. Trade union Unite accused it of ‘vulture capitalism’, and MPs said it was guilty of ‘legal loan sharking’.
Newcastle United fans were outraged when a sponsorship deal was signed for the Wonga logo to be worn on club strips.
Critics accused Damelin’s firm of targeting the poorest in society with predatory interest rates, and then sending threatening letters and hitting them with erroneous charges when, inevitably, they were unable to pay up.
Damelin vigorously denied his firm was responsible for exploitative lending and hired swanky PR advisers for meetings with numerous MPs. But a series of scandals began to suggest otherwise.
In late 2012, Wonga was forced to apologise for claiming in marketing material that its loans ‘do wonders’ for credit ratings. In fact, the presence of a payday loan on a customer’s file could convince a bank to refuse to offer credit.
It also removed a page of its website suggesting that its products might provide an alternative for student loans (an unlikely claim given the student loan rate was at the time around 1.5 per cent).
Shortly afterwards, a Wonga employee was found to have set up multiple Twitter accounts to label Labour MP Stella Creasy — who was then campaigning against Wonga — as ‘crazy’, ‘nuts’ and a ‘self-serving egomaniac’.
Then it emerged that computers in the firm’s offices were being used to delete references to ‘usury’ (the practice of lending money at unreasonably high interest rates) and the Newcastle United controversy from its Wikipedia page.
In 2013, the firm was found to have written to children as young as 12 to offer them loans, saying ‘ next time you want a small amount of cash, perhaps there’s an alternative’. Wonga said the letters had been issued in error. Then, in April 2014, an advert featuring the Wonga puppets discussing a loan and arguing that sky-high annual interest rates were ‘irrelevant’, because most loans were short-term, was banned.
The FCA began looking at Wonga and quickly discovered a major scandal — between 2008 and 2010 the firm had sent clients who fell behind with repayments letters from a pair of non-existent law firms, ‘ Chainey, D’Amato & Shannon’ and ‘Barker and Lowe Legal Recoveries’.
These fake missives threatened ‘adverse consequences’ if cash was not forthcoming — and Wonga had shamelessly decided to bill customers £9-a-pop for sending them!
THE Law Society and MPs promptly demanded a criminal investigation ( it’s an offence to impersonate a solicitor), but police eventually concluded that the case lacked ‘sufficient evidence’.
Wonga was, however, forced to repay customers whom the sham lawyers had hoodwinked into handing over £400,000 — albeit at eight per cent interest, rather than its own preferred figure of 5,853.
Then came the FCA’s discovery that Damelin’s firm was extending huge numbers of loans to swathes of people who should never have received them.
The firm was instructed to write off a whopping £220 million to 330,000 such clients. Another 45,000 were let off interest and charges.
Around the same time, Damelin divorced wife Julie Blane, the mother of his three children. Then he departed Wonga, taking his £17 million with him and leaving the company with a legacy that would eventually cripple it.
His Twitter profile, via which he passes occasional comment on world events, now makes no reference to his time at the notorious company, choosing instead to highlight his involvement with trendy start-ups such as Purple Bricks, an online estate agent.
It’s possible recent events have proved a distraction: records reveal that in June 2016 Damelin was taken to County Court for failing to pay a £1,635 bill.
The sum was eventually stumped up five months later. And unlike so many of his old firm’s customers, who seem increasingly likely to be left out of pocket, he probably didn’t need to take out a crippling payday loan in order to afford it.