Wonga may be gone but there are other lenders waiting to fleece the poor
The need for payday loans is a disgrace and there are better ways to help out those who need to borrow, says Iain May
It may well be that it is ‘Wonga no more’ but who will replace them? Wonga’s £400 million loan book will no doubt be sold at a discount to some other payday lender within a very short time.
The new provider will not only chase for payment but will continue to offer loans at extortionate rates to the many thousands of former Wonga customers, people who are living from hand to mouth, and for whom it takes only a small change to their work or living situation for them to find themselves in financial difficulty.
The need for payday loans has not gone away. Wonga is only one of many payday loan companies who are offering instant loans to individuals at exploitative interest rates, 1,500 per cent-plus is not uncommon.
It is sad reflection of our society that the demand for payday loans is still growing. Why? It may relate to the nature of current work patterns and the so-called ‘gig’ economy, where workers have to budget on a system where there is little guarantee of earning a decent and regular wage. Some politicians and business people talk of these work patterns as a result of our ‘dynamic economic structures’.
For many today, work is anything but dynamic. How can it be fair when the workers within this so called ‘dynamic economy’ have to make the basic choice of food on the table, pay the rent/mortgage or have money to travel to work, hence why so many have to resort to payday lenders.
In the UK, over two million people are trying to live on the minimum wage and millions are trying to cope on part time wages. Low pay is still too large a feature of working life in our country. As a result, the payday loan companies that will replace Wonga will continue to have a large market to exploit.
What is needed is some fundamental structural changes.
First, regulation of payday loan companies needs to be strengthened. A start has been made by the Financial Conduct Authority (FCA) in that they have introduced caps on interest rates and fees.
However, a continual review of the level of these capped rates need to be undertaken to bring them down to a more affordable rate, an interest rate in line with rates charged by the lending firms.
Secondly, we have a national minimum wage and a real ‘Living Wage’ and this has helped many. However, I also think there should be a national campaign to introduce a minimum ‘Living Working Hours’.
There is no point in having a decent level of minimum wage if the person’s working hours are not enough to ensure they can live and have the basics covered week by week or month by month.
Thirdly, it may be too late for the Wonga customers but if another payday lender was to fail, the FCA and the Administrator could be mandated to work together.
Instead of selling off the loan book to some other payday lender, why not investigate first the option of transferring the loans to more ethical lenders, such as community banks, credit unions and community development finance institutions. This would allow those trapped in the payday lender debt cycle to be given a fresh
start at affordable interest rates and the opportunity to save a little as well.
Just moving the issue around and not looking at the underlying cause
and financial structure of payday lenders will, unfortunately, result in more people being financially exploited and more people con ti nu mainstream
ing to live hand to mouth, which is not something we in the UK should tolerate or accept as the norm. But is anyone listening? Rev Iain May is the founder and chair of Castle Community Bank, a community credit union based in Edinburgh