Will wonga linga longa

So, Martin Wheatley has ‘sent the boy’s round’ to deal with that scourge on ‘UKplc’s hard working families’ – the Payday lender.

The FCA has announced it’s plans for dealing with these lenders, who dare to go where other’s fear to tread. In their “making sure only firms with a consumer-centric approach can do business in future” the outcome will be a reduction in this type of lending to those consumers who take it up responsibly.  It is a business model based on risk versus reward. Or in society today, the risk is taken but there must be no reward.

From January 2015, cost caps will be in place along with limits on how much you can be charged for late payments or no payment at all for a very long time. The final rules will be published in November 2014 so that firms still seeing viability in the model will have time to prepare for, and implement, the changes.

The FCA “estimate that consumers will save on average £193 per year, translating into £250m annual savings in aggregate

In the UK, some 1.6m people use payday lenders. I am not sure what that says about the economy, society or the banks. But it is a fact that these lenders provide financial succor to many in short term need of ‘wonga’, ‘wedge’, or ‘holding folding’.

Most understand the punitive effect of not repaying such loans quickly. Some do not, or in fact just do not care.

We heard recently that Wonga, the UK’s biggest payday lender (and of course sponsor of Newcastle United Football Club) had been ordered by the FCA to pay £2.6m in compensation for sending letters to some 45,000 of its customers in arrears from non-existent law firms threatening them with legal action.

The FCA, who could not fine the firm under TCF guidelines as it was not regulated by them at the time of the ‘offence’ say that ‘Wonga must identify and pay redress to all affected customers. While some customers will receive cash, others will likely have their outstanding balance reduced.’

The usual suspects entered daylight for a blast at Wonga, Mike O’Connor of StepChange Debt Charity, said: ‘For too long payday lenders have subjected consumers to unfair, misleading and distressing practices and today’s announcement represents a victory for a small number of those consumers.

It is indeed a small victory, most will receive around £50 per ‘punter’. The administrative cost will be far more.

As the City of London police were investigating whether Wonga has broken one of several laws it then emerged the Student Loan Company was using the same tactic to chase graduates for their student loans, and it can now be revealed that the threatening tactics go well beyond the ‘legal loan shark’ with a string of household names using the controversial ploy.

Even high street banks are using Wonga-style bullying letters to chase customers for payments. Barclays, Lloyds, Halifax, RBS and HSBC are among firms who have sent customers letters that look like they are from outside firms when they are not. The letters appear to be designed to put pressure on customers by making them believe requests for debt repayments have been passed on to third parties.

Citizens Advice chief executive Gillian Guy added: ‘it is dishonest of lenders to disguise letters chasing people for money as being from third parties.”

Now whilst I have no warmth at all toward the payday loan industry I have concerns that some, in launching their moral outcry, have overlooked a key issue, these individuals are not repaying a loan made to them in good faith. Wonga and others are lenders who lend where banks or employers would not.

  • The interest rates are enormous and are made very clear
  • Their marketing practices are terrible, as are all in this dark place

But in all cases

  • The letters were sent to those in arrears with their repayments
  • Letters from recovery firms chasing debts are a norm today, and often for very small amounts
  • Many borrowers are responsible, but sadly many are not it would seem in the case of Wonga and the Student Loan Company
  • In Wonga’s case around 45,000 are not.

The TCF crime as I see it is that Wonga created fictitious law firms to chase down debt. Banks and the Student Loan Company ‘waxed lyrical’ too with fictitious debt collection agencies, all no doubt to fire a warning shot that they would like repayment as agreed and expected.

The outcome of FCA enforcement involvement is that very many individuals, who owed money and were in arrears are now being compensated, in Wonga’s case with £50, for borrowing money they could not or would not repay and all because the letters came from a fictitious firm of lawyers (Messr Sue, Grabbit & Runne?) or debt collection agencies rather than real ones?

In another age, the ‘boys’ would have been sent round for a gentle word in their ‘shell like.’

In sharing caring 2014 UKplc, the message being sent out is that if you fail to pay your loan (that perhaps you should not have been granted in the first place) despite many warnings, you will be paid compensation.

At Wonga rates of interest 45,000 defaulters is a huge amount of arrears. Surely the best thing to do for all is simply to stop payday loan firms trading.

After all if more mainstream, responsible borrowers are having their mortgage aspirations severely curtailed by the Bank of England, the Treasury and the FCA MMR, what place should there be for payday lenders in the mix or student loans.

Yet while all this is happening, the FCA has spent a huge sum on regulating to protect the defaulters, the bad borrowers. Is a saving £193 per year really worth all this trouble?

Life is in a previous generation’s ethos about winners and losers. In UKplc today, society is hell bent on having £millions spent protecting people from themselves.

Instead of stating on loan literature “Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it” an alternative would read, “If you do not keep up repayments on a mortgage or any other debt you will be in receipt of an apology from the lender and compensation”.

Although regulation is needed in many areas, perhaps the best and cheapest option in regulating payday lending is to just ban it.

UKplc has completely lost the plot. Or do you feel differently?

 

www.panaceaadviser.com

 

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