Martin Lewis on the demise of Wonga

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Wonga’s demise is a cause for consumer celebration. Normally when firms go bust, the fear is diminished competition. Not here. Wonga’s payday loans were the crack cocaine of debt – unneeded, unwanted, unhelpful, destructive and addictive. Its behaviour was immoral, from using pretend lawyers to threaten the vulnerable, to pumping its ads out on children’s TV.

It’s important to understand the payday loan industry was built on the back of marketing, not need. They sold people the concept of a need to create a demand, then pushed their products. Wonga used powerful advertising and hi-tech tools to flog a debt that, for the vast majority of its customers, was hideously over-expensive and unhelpful.

It made it too easy – some even told anecdotes of pissed people, coming home, watching gambling on TV, seeing Wonga’s ads then pushing the button for instant cash at 5,000% APR to bet with. And as many couldn’t afford to repay, payday lenders made people sign up to immoral agreements that meant cash could be taken directly from their bank accounts without request.

Payday loans are for most a flawed concept. How many in dire need this payday would see such an improvement within a month that they not only not need to borrow again, but they could repay last month’s loan plus the huge interest.

Of course we need responsible borrowing too. Yet we have a national problem with financial illiteracy. We need financial education to be taught properly in schools. Shockingly some even believed higher APRs were better. 

Wonga was an irresponsible lender, giving loans to people who could not repay. It has now come unstuck for two reasons. First, due to the payday loan cost cap – which I was involved in campaigning for – though it took far too long to be put in place. At the time payday lenders and the FCA worried this would mean the industry was unsustainable. My reaction was ‘good’. These are bad products that cause misery, rather than provide solutions. The scaremongering that lack of availability would push people to loan sharks has proved false.

The second reason is that the far-too-belated scrutiny of the industry showed its high-tech clever lending criteria was baloney. It was giving loans to all and sundry, many of whom could not afford it and should never have been lent to – and so it had to pay them back.

However, the UK still does have an issue with the lack of availability of cheap, affordable fair credit, with good terms, for those in need. Thankfully credit unions are starting to fill the gap, but it isn’t enough. Sadly the last decade has seen the continued erosion of government social fund budgeting and crisis loans – that needs to stop. If not, Wonga’s decapitation won’t change anything, there’ll still be a multi-headed hydra of other parasitical high cost lenders, selling things like like rent-to-buy, log book loans or owt else, ready to jump in and take its place.