James Moore: A virtuous circle inside a less virtuous business

Outlook The recession can't go on long enough for some businesses. Take Wonga.com. The payday lender is rolling in dough, which means we can expect to see even more of its obnoxious ads polluting the airwaves over the coming months.

The company has found itself in the middle of a virtuous circle because every one of those ads guides new clients to a website that will squeeze them with APRs of more than 4,000 per cent, paying for yet more ads. Not to mention another car or three in the garages of millionaire founder Errol Damelin and his investors, including David Cameron's pal Adrian Beecroft, who is partial to spending his £100m fortune on classic motors.

The outlook could scarcely be more rosy for a business which has just announced a trebling of profits. Take the Government's decision to move to paying benefits monthly, with the aim of preparing claimants for work and encouraging them to budget "responsibly".

That might sound laudable, but what a Cabinet of millionaires fails to understand is that budgeting can be extremely difficult if you live on the margins. There is a very real risk that people will run out, and not simply because of any alleged "fecklessness". Unexpected bills can come out of nowhere from any number of sources; illness, injury, bereavement, even the need to replace a failing appliance.

These can knock even the prudent into a tailspin. A fact that payday lenders make much play of in their marketing. Care to guess where those people will go if they need funds? If not to Wonga, then to one of its less than salubrious rivals. To pawnbrokers like H&T or Albemarle & Bond, which have been growing similarly quickly. Or to a Provident Financial.

Wonga claims it rejects six out of ten applications. But depressingly there is an abundance of high-cost, short-term credit out there. Knock on enough doors and you too will find someone to lend to you at a four-figure interest rate.

The social cost of Mr Damelin's success could be frightening because the reforms to benefits haven't been accompanied by reforms to the regulation of a sector that's in need of far tighter policing.

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