Have Payday Loan Companies Pushed the Law Too Far?
Wonga has been receiving bad press recently, after it transpired that it had sent threatening letters to customers from fictitious law firms. As a result, it has paid out £2.6 million in compensation fees and has allegedly fired everyone involved with this illegal practice. This money has gone out to more than 45,000 customers, which works out at roughly £50 per person in damages. We’re not sure how effective this will be for all the people it has jettisoned into deep debt.
Even religious leaders have been getting involved in the payday loan debate. The archbishop of Canterbury has publically denounced payday lenders for pushing vulnerable members of society into what he calls ‘a crippling spiral of debt’. To regulate this industry, The Financial Conduct Authority has decided to impose price caps for those who take out a loan, as well as affordability checks.
You Might Be Surprised At Your Options
As Wonga allocated more than £10 million a year to their marketing budget, many of the more affordable competitors are unknown. With a demand for £6bn for loans, which are denied by traditional banks, there’s definitely scope to take advantage of those in need of borrowing money.
Credit Unions are one alternative that has its borrowing capped at 3% a month. However, Credit Unions have to be more selective about how they choose who they lend to. Usually, they will only grant you the loan if they are certain you’ll be able to pay it back.
Community development finance institutions (CDFIs) are social enterprises that lend money to those who struggle to acquire a bank loan – they are closer to Wonga in their principles, as they are not as restricted as Credit Unions and can charge higher rates of interest. They still work out a lot cheaper than Wonga, however. Wonga’s average loan is £180 for 17 days, which costs £37. Fair Finance, a London CDFI would charge you £5 for the same loan.
Reviewing Criminal Action
The police had previously ruled out taking criminal action against Wonga, but they have reassessed the case and are now considering further penalisation.
The Law Society has thrown around its weight, stating that Wonga has committed an offence under the Solicitors Act and they say Wonga used deception and blackmail to terrorise their customers. Wonga may yet have to answer to greater restrictions and penalisation, after their exploitative behaviour. Customers should bear in mind that there are alternative options to Wonga, if they find themselves in a tight financial spot. Soliciting Wonga’s help is likely to cause more problems than it solves.