Wonga is an extremely entrepreneurial and high profile business which has recently become the centre of public debate. In many ways it epitomizes sustainable business growth and guaranteed profit, which in the difficult economic climate should be admired. One of its co-owners earns more than a million pounds a year.It has tapped into a gap in the market. It offers instant short-term loans in return for a fee or interest. If a customer borrowed £150 for five days the loan would cost the customer £13.28, however, the longer it takes to make the repayment the higher the cost and after forty-one days the customer would owe almost £70 alongside the original £150. It is therefore little surprise that Wonga’s detractors assert that the company takes advantage of the vulnerable, those negatively affected by the economy.
The Trade Union Congress state that Wonga’s sponsorship of Newcastle Football Club demonstrates a targeting of vulnerable communities. The North East of England has the highest unemployment rate in the whole of the UK, it is these sorts of communities that require short-term loans and yet cannot truly afford to pay them back. This then draws the question – should profit be at the expense of vulnerable customers? Are Wonga providing short-term, high interest loans in the knowledge that some of their customers cannot pay back, but with the legal guarantee of compensation? Certainly the APR interest rates of nearly 6000 percent per year (amazing given the low bank rate), and the targeting of vulnerable communities suggests a degree of immoral profiteering. However, Wonga is acting within legal means – it is not breaking the law and can even be said to be stimulating the economy.
But the fact that indebted individuals are turning to Wonga and other payday loan companies and as a result are falling into deeper debt certainly raises moral objections.
The moral concerns about Wonga have been made highly public by footballer Papis Cisse’s refusal to wear a shirt with Wonga’s logo on as it went against his beliefs as a Muslim. Although Cisse has reached an agreement with Newcastle to wear the shirt, his protest has led to a highly publicised debate about Wonga, which culminated in the Church of England promising to compete the company out of business. It is significant that the Church of England has chosen not to take a legislative route by attempting to lobby and influence government to enact legal change in order to counter the growing success of Wonga. Instead The Church of England is embracing a capitalistic approach and is looking to outcompete the loan provider. To what extent though is this possible?
The Church proposes to support Credit Unions – these Unions also target the same customer profile but the price, the rate of interest, that they charge is much lower and they are not for profit organisations. They cannot charge above 2 percent interest per month meaning that the APR reaches only 26.8 percent as opposed to the figure of around 6000 percent. Consequently their loans are a more affordable option than Wonga’s, however, they are local organisations and lack the ability to trade in a national market.
While the Church of England has stated that it will not pursue legislative change, parliamentary pressure to protect vulnerable borrowers is perhaps inevitable. Individuals turn to loan companies as a result of marginal wages and insufficient welfare support. The numbers caught in this web is increasing because many firms have kept wage increases below the level of inflation and welfare cuts are beginning to take effect. Therefore government action maybe required to control exploitation of this group of people.
It is evident that Wonga are answering a demand caused by the current economic difficulties yet their pursuit of profit raises a moral issue – one that cannot be easily resolved. There is not a legal case against the lenders as they are merely exploiting market conditions within the law; however, the Church of England’s proposed system appears a more ethical alternative it just remains to be seen whether it will prove to be competitive.