Errol Damelin, chief executive at payday loans business Wonga, has slammed banks as "an oligopoly" and defended his company's highly criticised high interest repayment structure as being part of the "Facebook generation".
MPs have attacked the short-term loans industry for its quadruple figure APR charges, which amounts annually to a typical 2,689 per cent in Wonga's case. The company has been highlighted because of its high-profile advertising campaigns and sponsorship deals, such as Blackpool FC's shirts.
Labour MP Stella Creasy has been Wonga's most vocal critic in parliament. She has called on the Government to set interest rate caps on payday loans so that people do not end up in financially crippling circumstances having only borrowed a few hundred pounds.
However, Mr Damelin said that the business is clear that it only lends short-term money – never more than 41 days – and that the interest is only 1 per cent a day if the consumer sticks to the one-off repayment plan. "APR is totally irrelevant and actually harms the consumer," he said.
Mr Damelin said that it was made clear from the outset that customers should only use loans for emergency, short-term cashflow needs and that there are "no tricks or traps". He argued this was in marked contrast to the high street banks. "There is an oligopoly in retail banking," he said.
"People have lost faith in the banks. They are not transparent. They may offer a loan at 5 per cent but they make money on late fees and hidden extras and sell their customers all sorts of other deals to make their money."
Mr Damelin said some payday loan companies are little different to loan sharks, but insisted that such accusations should not be thrown at Wonga. He said: "We don't operate from a PO Box like some of these faceless companies. We are proud of what we do and are right here in London. A regulated lender isn't a loan shark."
Mr Damelin said that unlike banks Wonga doesn't make money on those who can't pay back loans. He says fewer than 10 per cent of its customers haven't paid within 60 days. "We are aimed at the Facebook generation that needs 24/7 access and they are willing to pay for the convenience."
The Office of Fair Trading, in its review into the £7.5bn payday loans sector last year, did not recommend caps on interest rates. Mr Damelin welcomed the decision: "Caps on the interest charged will only encourage lenders to go underground. It would create loan sharks on our streets."
Wonga set up as the credit crunch started in 2007 and has traded strongly as people faced short-term cashflow difficulties. The company raised £73m this month for expansion.