The decision by Wonga to write off the debts of some 330,000 customers, even if it came at the behest of the Financial Conduct Authority (FCA), is a welcome recognition that something had gone badly wrong with the way the payday lender was operating. But it nonetheless raises a number of uncomfortable questions for both the political and regulatory communities.
The most obvious relates to the sheer number of people involved. Just how was Wonga allowed to get to the stage where it could offer inappropriate loans to so many people?
It is not as if the problems with the company weren’t clear. They were given a regular airing by charities, by debt advice groups, and by journalists via a steady stream of reports in this and many other newspapers.
In fact, regulators first took note of evidence of poor practice back in 2010 when the old Office of Fair Trading had responsibility for consumer credit. And yet it has taken four years to get to this point. It was, in fact, only Chancellor George Osborne’s abrupt U-turn on the subject of interest rate caps for payday lenders last year that gave impetus to the more assertive approach now adopted by the FCA towards Wonga and its fellows. But the wider problems that facilitated the creation and growth of Wonga remain to be addressed. Rather they are being exacerbated by Mr Osborne’s policies.
The narrative fostered in some quarters of an over-generous and unsustainable welfare state that needs more radical pruning is one that Mr Osborne and the Conservatives have played up to. Wonga’s success tells a rather different story; one of an army of people willing to pay annual rates of interest of 5,000 per cent or more in a vain attempt to keep their heads above water.
Mr Osborne was right to use the power of the state to rein in the worst excesses of payday lenders. But he is simultaneously creating more customers for them.Reuse content