Non-beardy says “I’ve met the head of Wonga and I’ve had a very good conversation and I said to him quite bluntly we’re not in the business of trying to legislate you out of existence, we’re trying to compete you out of existence” (see-also the Gruan). When I first heard this while driving into work I mis-heard it (or slightly more accurately, at that point the news was new, and exactly what he meant by this wasn't clear): I thought the CofE were intending to actually loan out money, on a commercial-but-nicer basis. Thankfully they aren't going to do that: it would most certainly have been a total disaster (remember the Church Commissioners financial ineptitude). In principle I applaud his stated intent of out-competing rather than out-legislating them; that would be, in principle, the way to demonstrate that your system is better. But I think that while he might actually do some good, overall he is doomed.
[N.b.: while everyone in the current version of this argument is using Wonga in the generic sense that "Hoover" means vaccuum cleaner, AFAIK they are just one of several such "pay-day lenders".]
It fairly soon emerged that the CofE actually hold a stake in Wonga, albeit indirectly. That doesn't directly affect the argument; but it would be a hint to the wise that modern finance is more complex that back in the good old days of clearing the moneylenders out of the temple.
I visited the CofE website to see if they'd laid out their plans carefully there, but they hadn't. So I decided to use the FT to work out what they are proposing. First of all, there is some rhetoric, or perhaps scene-setting if you're more generous:
Justin Welby, a former finance executive in the oil industry, has described lenders such as Wonga as “morally wrong” and has compared the industry to Old Testament usurers.
This, too, is a hint to the wise that they're on the wrong path: traditionally the fight against usury has been a fight against reality. Even now the stricter bits of the Muslim world have absurd bits of financial engineering that dress up interest in order to pretend that it isn't. But on to the plans:
Dr Welby has... laid out plans to help 500 financial co-operatives, which already provide small loans, to expand their reach by using the Church’s 16,000 premises. He said he was embarking on a “decade-long process” to make credit unions both more engaged in their communities and “much more professional”. He has already launched a new credit union for clergy and church staff at the General Synod in York earlier this month.
This might do some modest good. I have no personal experience of this stuff, but I can easily believe that there are a number of financially-pressed folk who could do with useful advice, and possibly some actual help.
However, I strongly suspect that there is also a block of people who have a reasonable understanding of what is going on, and simply need a loan, and no-one else is going to give it to them, which is why they go to the likes of Wonga. And if you're making smallish loans to financially pressed people with little or no collateral, then you're going to have high expenses and you need to make money to cover the inevitable default rate (see-also Timmy). I haven't checked, but I rather doubt that Wonga is making ginormous profits. If it was, it wouldn't be for long, as others would pile into the sector and margins would fall. If it isn't making enormous profits, then its margins aren't excessive. QED.
But I have to admit, Dr Welby is a model of sanity compared to idiot politicians such as:
Stella Creasy, a Labour MP who has campaigned for a cap on credit costs and a wider crackdown on payday lenders, welcomed Dr Welby’s intervention, but said: “It should not take divine intervention to deal with this problem. It is very easy to fix.”
You have to be a complete moron, or a complete liar, to assert that this problem is "very easy to fix".
[Update: I'm pleased to say that the Tories, fed up with falling behind in the talking-utter-drivel stakes, have made a late - and, it looks to me, winning - entry in the "Oh good grief I really can't believe that even a politician would be dumb enough to say that" competition:
Church should consider pulling money out of Google, government adviser says... Claire Perry, a Tory MP and David Cameron’s adviser on childhood, went a step further by urging the Church and other investors in Google to “put their money where their mouth is”.]
[Yes, I know. Another ill-advised foray into economics and politics. But at least you know what I think.]
The immorality of a system which amplifies the debts of those least able to cope is obvious. Penalties rising to thousands of a per cent are not much of an improvement on loan sharks threatening violence. I have no doubt that the bloggers of Dickens' time would argue that there was no viable alternative to sending debtors to jail.
[Its a contract, freely entered into. What alternative are you offering the people that want to take up Wonga's services? -W]
correction: It should have been
"...thousands per cent per annum .."
I remember when 30% interest was a felony in a few states.
"So much rope, so little used."
Google Wonga and Pappis Cisse
[Ah, you mean Cissé became increasingly aware that neither Mike Ashley, Newcastle's owner, nor Wonga was prepared to countenance him wearing either charity- or non-branded kit and his case appeared undermined this week when photographs of him in a Tyneside casino, apparently gambling, were published. Your point is he was being hypocritical? -W]
A little arithmetic shows the potential for Wonga to be highly immoral.
Say I borrow £100 from Wonga at 400% p.a. and can't/don't repay it in full at the end of the week. So I only repay the interest, then six months later I will have repaid twice what I have borrowed and still owe them the original £100. It is not in their interest for me to repay the principal. It suits them to go on taking the interest, and fleecing me!
The people they are targeting are the poor, who they are making even poorer rather than helping. That is immoral in my book.
Their advert, showing three cheerful grannies, gives completely the wrong impression of the loan sharks they actually are.
Of course the credit card companies use the same technique but their interest rates lead to bankruptcy much more slowly.
BTW, it seems that some US states and Germany set a fixed upper interest rate of 20%. That is what we should do in the UK, and stop the credit card companies swindling us.
[The point you're missing (and its a point I made explicitly, so I'm disappointed) is that these contracts are freely entered into. That implies to me that the people borrowing from Wonga want to do so. You're taking it upon yourself to declare that what they want to do is immoral, and therefore they must be banned from doing it. Its not clear to me why they should prefer your judgement over theirs. Perhaps you can explain?
Normally the things we ban - like, say, smoking in pubs - is on the grounds that it would be harmful to society to permit it. Or requiring seat belts. Or forbidding driving whilst drunk.
I think it might be possible to make a case that the "spiral of debt" stuff might lead to severe societal harm and therefore the whole thing should be banned - but I don't see any recognition from you, or others, that such a case needs to be made -W]
I have just noticed that you blog carries two adverts for British Airways credit cards! At the top of the page the APR is quoted as 56.4% and on the side at 15.9%!
Re: in line reply to #1:
[Its a contract, freely entered into.
Only if you disregard the observation 'lack of money = no freedom'.
As for solutions, I am no banker , unlike the Archbishop, so can only make non-expert comments. If as you suggest, market based solutions will fail, then I would advocate a U turn on welfare cuts which have amplified what was a small problem. There is also another observation:
'wealth = access to low interest'. Its still not such a big problem and would make little difference if the state borrowed a bit more at a low rate of interest in order to subsidise a scheme of some sort. Possible models; student loans scheme, NHS,legal aid (as it used to be).
[OK - so they don't like payday loans either. But they too are refusing to engage with the basic problem that people want these loans, which is why they enter into them. If you want Wonga-types shut down, hard, then I think you've got no alternative to the position that "these poor folk don't know what's good for them. I do know what's good for them, and I'm going to take away some of their choices". That would be a coherent (and quite possibly defensible) position. Anyone here brave enough to sign up to it? -W]
One out of two ain't bad in the morals game or as James put it
M-PESA is the future for microloans
[Its an interesting concept, but someone still has to provide the money. Wiki says:
The initial concept of M-Pesa was to create a service which allowed microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers. This would enable microfinance institutions (MFIs) to offer more competitive loan rates to their users, as there is a reduced cost relative to dealing in cash. The users of the service would gain through being able to track their finances more easily. But when the service was piloted, customers adopted the service for a variety of alternative uses and complications arose with Faulu, the partnering MFI. In discussion with other parties, M-Pesa was re-focused and launched with a different value proposition: sending remittances home across the country and making payments.
That could change in the future, perhaps -W]
hey, this looks even better* than payday loans:
* for the shareholders
f you want Wonga-types shut down, hard, then I think you've got no alternative to the position that "these poor folk don't know what's good for them. I do know what's good for them, and I'm going to take away some of their choices".
Actually, I'm pretty sure they do know what would really be good for them - more money. And as a supporter of a Citizens' Income Scheme, an opponent of benefits cuts, and a proponent of a higher threshold for income tax, I'm keen to give it to them.
Perhaps we should consider allowing people to sell their organs too? Or sell themselves into slavery? Both could equally be defended as "contracts freely entered into".
[Yes, unfortunately that's true; and I would oppose either (though I'm a bit wobbly on the organs bit). So I can't claim an entirely coherent position myself -W]
Yes, unfortunately that's true; and I would oppose either (though I'm a bit wobbly on the organs bit). So I can't claim an entirely coherent position myself -W
OK, so we are agreed that there are some agreements which people should not be allowed to enter into... Now, I'm pretty sure that absolutely nobody in this debate is arguing that any interest on a loan is immoral (which kind of renders your remark about how "the stricter bits of the Muslim world have absurd bits of financial engineering that dress up interest in order to pretend that it isn’t" completely irrelevant), so we're merely debating as to whether there is a level of interest which is immoral, and if so, what that level is. I'm not convinced that that's an argument which has an easy and obvious answer... You can of course (as you have) resort to the argument that the magic of the free market will prevent any gouging, but I tend to feel that this is not especially convincing. We have an Office of Fair Trading for a reason, after all... (And they have censured Wonga for some highly questionable collection practices in the recent past: http://www.oft.gov.uk/news-and-updates/press/2012/40-12#.UfZdP230rUI.) It's therefore an open question as to whether the market for payday loans is working as it should, and whether the regulatory framework is correct. Neither of those questions seem to have easy and obvious answers either... However, given that there are a number of regulatory changes already in the pipeline (including moving credit licensing from the OFT to the FCA, which is expected to enforce a much tougher regime), it seems that the opinion of those whose job it is to oversee such matters is a fairly firm "no". [See e.g. http://www.ft.com/cms/s/0/4c34d02c-e234-11e2-a7fa-00144feabdc0.html#axz…]
Oh, and as to whether they're making "ginormous profits", maybe you should have checked: http://www.bbc.co.uk/news/business-19620560. Whilst it doesn't necessarily indicate whether absolute profits are unreasonable, tripling profits in a single year is certainly quite remarkable.
So, massively increased profits, enforcement action from the OFT (and two complaints upheld by the ASA, although not since 2011), and a new regulatory regime in the offing... No, there's clearly nothing to see here. Move along.
> [Its a contract, freely entered into. What alternative are you offering the people that want to take up Wonga's services? -W]
How about a limit or regulation on zero and low hours contracts that can leave people short of cash at a moment's notice; more regulation on betting shops and "fixed odds terminals" that can leave families short because of one delusional member of that family; proper management of welfare where money is not withheld for spurious reasons by the agency in the hope that the claimant will fail to understand the appeals process; a ban on letting agents fees for tenants that can mean people pay £4-500 for a 6 month contract, get kicked out at the end and then need to find another £4-500 (while waiting weeks to get their deposits back).
Just a few random ideas.
I learned at my first job that almost every fortune -- this before computers were small enough to fit in a trunk, let alone a pocket or eyeglasses --- was made by doing something that subsequently became illegal, eventually, long after the external costs were made publicly known.
I doubt that's changed much.
PS, I'd be surprised if the tactics documented in the Atlantic Wire article are common in the UK or Europe. They're sadly familiar in the US, in politics, and this is definitely politics.