The wonder of Wonga is that it lasted so long. The arch-villain of the payday loan sector, which grew like a mutant fungus out of the wreckage of the financial crisis, once clocked up a record Representative Annual Percentage Rate (APR) on its loans to gullible and desperate cash-seekers of 5,853 per cent, and was ordered in 2014 to write off the debts of 330,000 delinquent borrowers who could never have passed proper ‘affordability’ checks. The imposition by the Financial Conduct Authority of a cap of 0.8 per cent per day on lending rates, plus limits on default charges, knocked out many smaller competitors, but Wonga (with a 30 per cent market share) carried on — accumulating trading losses and compensation claims as it did so. Now it’s collapsed into administration, with most of the media preparing to dance on its grave.
But was it all bad? Before the advent of Wonga and its ilk, from 2007 onwards localised markets for short-term, high-interest loans were shady and shark-infested, and it goes without saying that high-street banks had nothing to offer the suddenly strapped-for-cash personal customer. The new breed of lenders who stepped into that gap conducted their business in daylight, online and via television advertising, making their terms explicit even if they were exploitative. Wonga eventually drew the holy wrath of the Archbishop of Canterbury, but in its earlier phase it attracted several rounds of reputable private-equity backing (even, until 2013, from the investment arm of Wellcome Trust, the UK’s biggest charity) and won awards for innovation.
As I’ve said before, it wasn’t the Wongas of this world that lied about lending rates, but the borrowers who too often lied about their incomes and existing debts to secure loans for holidays and luxuries they could not afford. Coverage of Wonga’s impending demise has been all about ‘victims’ who may not now receive compensation for exorbitantly compounded interest and penalties. But on balance it’s a good thing the sector hasn’t been entirely wiped out: Lolly will try to find you £2,000 from a range of lenders ‘within ten minutes of approval’ while ‘when life catches you off-guard’ Sunny offers to rustle up £2,500 within 15 minutes; both indicate maximum APRs of around 1,290 per cent. If that’s the solution to your cash flow problem, just make sure you read the small print and repay on time.
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This is an extract from Martin Vander Weyer’s Any Other Business, which appears in this week’s Spectator
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