Fair deals for payday users

FEW tears will be shed after it emerged that payday loan business Wonga, which sold itself to investors as the electronic choice that would transform the industry, has plunged i nto a reported £35m loss.

The clampdown on bad practice in the industry, including an upper limit of 0.8pc a day on interest charges and the ruling that borrowers should never be obliged to repay a sum more than double the original loan, has radically changed the economics of the industry and chased some of the cowboys out of the market.

It is also worth noting that many of the payday lending operations on the high streets sprang up in the aftermath of the financial crisis, when the banks all but stopped lending, credit card limits were dramatically curtailed and the jobless rate soared.

So they did serve some social function. Since then the banks have repaired their balance sheets, credit card firms have eased limits and the unemployment rate has fallen back to where it was before the recession. So the pressures of austerity have eased dramatically.

As nice as it would be if there was no need in the market for payday or doorstep lending, it still fills a gap. The banks still eschew the poorest sections of society, credit unions are a wonderful idea but capacity is limited and by nature they have to be very cautious.

It is, after all, depositors’ money, some of them members of churches, that is at stake.

One reform that is possible is to make sure that those who do seek emergency borrowing at least can access it in an honest way.

As has been seen with energy price comparison sites and some car insurance sites, among others, the way the providers are ranked has less to do with value for money and more to do with subscriptions to be on the site and advertising revenues. The need for high-risk borrowers to have a place to go that can be trusted remains.

A possible solution, incorporating a commitment to transparency underlined in reports by the Competition & Markets Authority and the Financial Conduct Authority, is a comparison website that can be relied upon.

A recently launched site, fairmoney.com, seeks to do this. It promises to judge the best-value loan products, provide clear guidance on fees and charges on a neutral basis.

There will be those who will argue that they want no truck with payday lenders, and it would be better if Wonga et al were quietly buried.

It is worth remembering, however, that unauthorised overdrafts at High Street banks can, on occasions, be equally as usurious as payday lenders.

And the alternative of driving the industry back underground, leaving it in the hands of baseball batwielding thugs, is no answer.

Better a transparent, honest and a highly regulated emergency loans services than none at all.

Cold comfort

AFTER eight, recession- scarred years in the hands of private equity firm Permira, it is hard to believe that Iglo, owner of the Birds Eye brand beloved of generations of fish finger eaters, is in the best of shape.

The marketing may have been smartened up to create buzz around a cratered brand, but frozen foods are hardly of the moment.

The purchasers, Nomad, an enterprise run by consumer products entrepreneurs Martin E Franklin and Noam Gottesman, argue that Birds Eye’s 30pc share of Europe’s frozen food market makes it an attractive proposition. It has been bought at a valuation much lower than its US counterpart Pinnacle.

It will no doubt be a steady earner, even though sales slipped last year.

But investors must question why Nomad believes there is value in a proposition rejected by Unilever and emerging from the uncaring hands of private equity. British investors may well remember the last food group that picked up the abandoned morsels from the table of the big global players – Premier Foods. Having built an empire on the back of debt and what it considered unimpeachable brands, it has spent the past few years in endless restructurings and management shake-ups. It has been jettisoning brands as quickly as it can, to the first buyers to come into view.

It is not a great model.

Pay pause

AMID the assemblage of crackpot ideas in the party manifestos, one which is gaining some momentum is the idea of some form of worker oversight on executive pay. It is a measure of the feebleness of remuneration committees, at companies as diverse as BG and Barclays, that the politicians and activist investors are looking for new approaches.

There must be a concern that employee non- execs will develop Stockholm syndrome, be bedazzled by the spread sheets provided by the pay consultants or simply be ignored. Something needs to change and some common sense from the shop floor might just be a constraining factor.