Fairmoney’s view on the Wonga crisis
Wonga was a disruptive entrant in the loans market. It was always going to be controversial.
It dominated the market, attracting custom via humourous, expensive, television-based marketing.
It opened up the payday loan market – short-term lending of up to £1,000 at very high interest rates – and provided the ‘unbankable’ with loans so that they did not need to turn to unlicensed loan sharks.
It provided a necessary evil – and it was never liked by its borrowers and by wider society due to interest rates (APR) of several thousand percent (up to 5853%). Loans were repeatedly rolled over and a small loan of a few hundred pounds soon grew into debt in the thousands.
Despite the high interest rates, exorbitant costs and significant default rates ate into Wonga’s performance. In its peak year 2012, Wonga was said to be making a profit of £15 on each loan (or around 5% of each advance). Revenues were £309m but write offs and impairments of £222m ate up 75% of this.
Where was the assessment of the affordability of the loans? How were they treating vulnerable customers?
It provided a source of short-term funding after the banking crisis when the banks stopped lending to pretty much anyone– but at its unchanged high interest rates – not adjusting for the vastly improved credit profiles and lower default rates of its new-found customer base. This was grossly exploitative, unfair and of huge negative social impact!
If you would like to learn more about a “new generation”, multi-dimensional loans comparison website, designed to provide fair and bespoke consumer loan products for its customers, please click here.
If you would like to view an interview from 2016 between the Chairman of Fairmoney, Roger Gewolb, and the Archbishop of Canterbury, in which they discuss the role of Wonga, please click on the video below.