Friday 26 July 2013

Wonga and Welby

Wonga is a company that makes "payday loans", short term loans, usually to people with poor credit. On their web site is a representative example, £150 for 18 days, repay £183.49. Representative APR 5853%.  You might think that a 5853% interest rate is very high.  I think that £450 for a Freelander starter motor is very high. I expect my Landrover dealer thinks that it's a reasonable price. It's all a matter of opinion.
You don't have to take out a loan at 5853% interest. I don't have to buy a Freelander started motor. It's a free market.  I think that 5853% is a very high interest rate, and I wouldn't take a loan on those terms.  But I'm not desperate for £150 to tide me over the next 18 days.  The Archbishop of Canterbury, Justin Welby, has come out publicly against payday loan companies. Not just Wonga (they're one of the biggest in the UK, possibly the biggest). His idea is that the Church will encourage (how?) credit unions, which aim to make lower-cost loans to members. He's told the boss of Wonga that he doesn't aim to kill them with legislation, he aims to out-compete them.  So imagine his embarrassment when an astute journalist discovered and revealed that the Church is one of Wonga's investors. Oops! But only to the tune of £75,000. Minor oops.  Usury is a sin. What is usury? That's harder to pin down. In Islam, it's the charging of interest. In Christianity, it used to be the same, and moneylending could only be done by non-Christians - meaning jews. Today, Christians define it as loans with excessive interest rates. But "excessive" is an elastic concept.  So, let's look at Wonga. The latest figures I could find for them (Wikipedia) are profits of £45.8 on revenue of £185m. That's 25% profits. That doesn't sound excessive to me. I checked Apple, they're making 23% profit.And if you think about the sort of business they're in, they must have a pretty high number of loan defaulters, and they can't send the lads around to break your legs. They say 7%, which they say is comparable to other short-term lenders. But that still means that 1 in 14 times they lend out that £150, they don't see it back.  
  According to Which? credit unions typically charge 12.7% APR. That's more like it! So I tried to see if I could borrow from a credit union.  The nearest one I could find was the Aylesbury CU; that's maybe 15 miles from me. But when I went to their web site, it said "For people who reside in or are employed in Aylesbury". And that rules me out.So I gave it my post code, and it came up with one for people in Harrow or Hillingdon. And I don't. So I can't see any way that I could borrow from a credit union.  I decided to check out Milton Keynes Credit union. You can't borrow from them until you've been saving with them for three months, which seems entirely reasnable to me, and you can only borrow up to three times the amount of your savings. Their APR is 26.8%, which sounds not too bad; credit cards are around that level.  So if you're a member of a credit union, and you've been saving with them, they'd be a good place to go for a loan. But if not? And if your bank won't make you a loan? I see three possibilities.  1)  Go without. Maybe the cash you wanted was for a holiday, and maybe you don't need a holiday as much as you thought.  2) Borrow from Wonga, or one of the other payday loan companies.  3) Contact the Archbishop of Canterbury and ask him to put his money where his mouth is.  My view? I'm glad I'm not in the position of needing to borrow from a payday loan company, but I think that what they are doing is legal (otherwise something would surely have been done by now) and ethical, because what you get is exactly what they say you'll get, and what it costs is exactly what they say it costs. I don't get spam from them, and their TV adverts are rather fun.  On the other hand, the Archbishop of Canterbury is offering something (forgiveness of sins, salvation, a place in heaven) where there's no way of knowing whether you'll get what he says you'll get, and there's no way of knowing what it will cost, because if you sign up for the wrong god, you could find yourself in a very bad hell indeed. 


  1. drsolly,

    Very entertaining, thank you. I'm surprised you found time to work in the earlier days, your imagination running riot and all that. No wonder you can find caches that others can only dream about!

  2. Work? What is the "work" of which you speak?