Wonga was the poster child of all that was and is wrong with the credit industry.
It was a tech start-up touted to soar into the stratosphere – alongside Facebook, Amazon and Google. It attracted investors and board members from venture capitalists and luminaries of the digital world. It had quirky TV adverts with puppets, and a slick online system that provided the user with what they needed without the hassle other providers caused. It is now on the brink of going bust.
Wonga offered short-term loans at astronomical rates to people, without the checks and safeguards required for other lending. An accessible loan of £100 borrowed for 30 days might appear an attractive option. It might plug the gap until pay day, or help pay for children’s school clothes. But, when you paid it back at the end of the month, it wasn’t a spare £100 you’d need to find but a lot more. Wonga rarely made their annual interest rates easy to understand, instead opted for daily rates or illustrative repayment amounts, assuming you repaid on time. But the annual rates sometimes worked out at more than 4,000 per cent; one client told the BBC that her £300 loan mushroomed to £2,000 with default fees and interest.
Criticism of Wonga received high profile attention when the Archbishop of Canterbury, Justin Welby, declared war on Wonga in 2013. He said then that “the church wants to put you out of business”. This was not planned as an outright ban on such lenders but, rather, offering better options through credit unions and other lending models. However, the attack threatened to backfire when it emerged that the Church of England had indirectly invested in the payday lender: an embarrassment Welby took on the chin, but a warning for critics to look after their own houses lest their well-intentioned campaigns flounder.
In 2014 the Financial Conduct Authority ruled that Wonga’s practices were unfair, and it has been a downhill slope for the company since then. That ruling meant that 45,000 customers were entitled to £2.6m in compensation. The same year, new rules meant that interest could not be more than 0.8 per cent a day – it might not sound much, but a £100 loan would accrue £292 interest if left for a year. Wonga saw customer numbers halve and wrote off bad debts of £220m for a just over 330,000 customers.
"The Bible doesn’t offer us a comprehensive economic policy, but it does encourage us to confront economic injustice and exploitation."
Their business prospects have suffered in the last few years, but Wonga went wrong from the start. It was a business based on exploitation, offering money to people who needed it but in a way that led to desperation and crisis rather than hope for the future.
The Bible gives a very different vision of money and ownership, from the year of Jubilee in the Old Testament to the example of the early church holding everything in common. Jesus taught that those who have the greatest wealth had the greatest obstacle to entering the kingdom. His economics was unconventional: a single penny held huge value, and one sheep was worth the same as the rest of the flock. The Bible doesn’t offer us a comprehensive economic policy, but it does encourage us to confront economic injustice and exploitation.
In that light, Wonga’s seemingly impending collapse should not be a time for mourning. Investors will lose out – reports suggest they have poured £90m into the company since it started in 2007, with £10m going in just recently to try and shore up the company’s viability. But losses have mounted in each of the last four years, and administrators are being lined up to handle the impending collapse.
Some companies are bad. Not all enterprises should prosper, and as much as we should encourage entrepreneurship and innovation, these should never be at a human cost. Loans given out as attractive options with punitive repayment schedules do not help those in poverty but only drive the nail deeper.
This is also a chance to recognise the power of popular pressure: not just the words of high profile figures such as Welby, but also grassroots campaigns. When Wonga sponsored Newcastle United in 2012, fans were not happy with the partnership – not that it did much immediate good, as the deal lasted its four year term. However, fellow payday lender, QuickQuid, fared less well in their sponsorship of Bolton Wanderers, which was cancelled after outrage from fans and local politicians.
When businesses are operating in an unethical or downright immoral manner, we have a responsibility to speak up. We should recognise why people use businesses such as Wonga, but that should motivate us to action rather than resignation. The church has led the way on financial education and debt support through organisations such as Evangelical Alliance member Christians Against Poverty and has provided alternatives through credit unions. This is work that must continue especially as people may be searching for other, potentially more dangerous, options to access quick money with Wonga’s demise.
