I was watching a programme recently on the telly box about folk much less fortunate than I am.
Some of these folk had not much more than £1 a day to feed themselves, and possibly their kids as well. I could sympathise with some of them whilst others left me shouting at the telly in frustration.
But when my initial grumpiness subsided I realised that a pattern was beginning to emerge. A lot of these folk were in the situation they were in through bad choices, and one of those bad choices was a Payday Loan.
It sounds quite simple doesn’t it, borrow a relatively small amount over a short period until you get paid or your Giro comes in. What could possibly go wrong? Plenty it would seem, with much pain and grief for some of the people taking loans this way.
This prompted me to take a look at Wonga.com and, to be honest, I was shocked. The example provided on the front page of their website was:-
Borrow £150 for 18 DAYS and repay£178 or 365% Interest Fixed PLUS a £5.50 admin fee and all of this with a REPRESENTATIVE APR of 5,853%. Not a typo, nearly 6 thousand per cent APR interest.
If a man in a grubby mac with a dog-eared book called at your door and offered you a loan at a mere 200% interest you’d tell him where to go, but if the lender wears the cloak of respectability that’s aright then.
This got me thinking about a very under-used word – Usury. What does it mean? It is the practice of making unethical or immoral monetary loans intended to unfairly enrich the lender. A loan may be considered usurious because of excessive or abusive interest rates or other factors. Someone who charges usury can be called an usurer, but the more common term in English is loan shark.
Intended to unfairly enrich the lender? Excessive or abusive rates of interest? I have no idea but 5,853% APR seems mighty high to me.
Last year Wonga rejected claims that its interest rates are extortionate. Wonga’s chief operating officer Niall Wass said the firm’s advertised representative annual percentage rate of 5,853 was in fact ‘very misleading’. ‘What we actually charge is one per cent a day,’ he told Sky News. ‘On average for 17 days the average first time loan is £180. So on average people pay £36 for their loan.’
An un-named source said “The reality is we charge 1% interest per day, with an average loan of 16 days – meaning that a typical Wonga customer pays 16% interest across their loan.” 1% per day? And the Bank of England interest rate is what? Half a percent per annum? Still sounds like a very expensive loan to me no matter how you try and dress it up and make it look more attractive.
So whether it counts as Usury or not, what are the British government doing about Usury and Loan Sharks?
In the United Kingdom, usury laws once capped interest rates at 12% per year, then at 5% per year. But these laws were repealed completely in the mid-19th century.
Many other countries have a cap on interest rates. In Germany, lenders cannot charge more than 20% interest a year. Italy brought in a legal definition of usury in 1996. US states all set their own caps on interest rates, some higher than others, and a Consumer Financial Protection Agency was created last year to supervise this at the national level. Payday loan interest rates are capped at 60% in Canada. Under Sharia law, the charging of interest is forbidden entirely.
So what is the British Government doing about it? Naff all it seems
Wonga is the UK’s largest payday loans company. Its new head of Public Affairs used to be an advisor to David Cameron, leading to accusations that the company is lobbying its interests with government. Wonga reportedly paid for meetings with Conservative ministers (allegedly). “They paid in excess of 1,000 GBP to have a 15-minute talk with someone from government. That’s not right; you’re using your influence because you have money and because they want money for their election,” noted John Robertson, a Labour Party MP.
All over the country access to payday loan websites has been blocked from computers in public buildings such as libraries in an attempt to prevent people being tempted by instant cash that will plunge them into debt. Local Councils are taking it seriously, why can’t Central Government?
Wonga apparently makes more than £1 Million profit each week, but in 2012 gave just £10,000 to each of three charities. This at a time when 1,000 PER DAY were apparently downloading the Wonga app onto their iPhones.
I’ve had enough. I can’t get my head round it. Gideon had his budget yesterday, he had ample opportunity to address the crisis known as Payday loans, but I didn’t hear them mentioned once.
It’s a good job we’re All In This Together.