FacebookTwitterGoogle+RedditEmail

Financial Terrorism

This business has been too focused on growth and cared more about the loan outcome than the customer outcome.
Andy Haste, Wonga Chairman, The Guardian, Oct 16, 2014.

Keeping people poor in a world of seedy abandonment. Borrowing at phenomenal rates. Loan sharks running wild, dressed by the language of assistance and salvation. All of this should be the stuff to be binned and repelled by governments, but in an age when governments forfeit, rather than affirm responsibility in the face of the economy, the phenomenon of Wonga, a deferred deposit loan operator, has come to thrive. Private indebtedness has become both a condition and a lifestyle.

The names of such companies as Wonga suggests something benign, a sort of gentle helper in the world of tightened finance. You need cash. You need it quickly. Get the money, but then repay it at phenomenally high rates of interest. If you can’t make the payments by each payday, then you can be re-issued with a new round of finance for the debt. The circle closes, and is never opened. Goods can be repossessed. Property is surrendered. A loan of $200 easily multiplies to returns of $2000 for the lending company. (Wonga’s own rates can be up to 5,853 per cent a year.)

As the Australian Securities and Investments Commission cautions individuals, “The best way to stay out of debt is not to get a loan. Think about whether you really need the money right now, whether there are any other options, and whether a small amount loan is the right credit product for you.” Steven M. Graves of California State University, Northridge draws up a depressing picture. “Growing disparities in the type of and accessibility to credit in the inner city has generated calls for greater regulation to curb practices by payday lenders that critics claim disproportionately affect poor and minority customers.”

It should not be surprising that this fiendish financial product is not new. Alan Bond, convicted for Australia’s biggest corporate fraud, was one who did enjoy the business of pay-day lending. In Britain and the United States, it took off, a rogue model of obtaining profits that sent financiers courting those at the bottom of the economic food chain.

It even got the Archbishop of Canterbury, Justin Welby, worried. So much so, in fact, that he has a proposal: supporting credit co-ops, effectively credit unions that will act as a buffer against the loan shark model. In Welby’s words, they will be “both engaged in their communities and are much more professional – and people have got to know about them.”

Welby, however, has another reason. Wonga has become a problem for his own organisation. The Church of England’s pension fund has found its money invested via a North American venture capital firm in Wonga’s own reserves. Ethical uprightness has, as a result, been undercut. “It shouldn’t happen, it’s very embarrassing, but these things do happen and we have to find out why and make sure it doesn’t happen again.”

Wonga, which has been termed a “payday lender”, has written off the debts of 330,000 borrowers this month who were more than 30 days in arrears. The value of that comes down to an eye goggling £220m. Additionally, 45,000 customers in arrears will not be chased up for interest owing. The company is in retreat in the face of its own practices which have managed to lure individuals into the debt cycle in the name of innovative “business models”. Perhaps it is only fitting that it should have a new chairman by the name of Andy Haste, whose surname does not augur well for the company’s practices.

In a desperate attempt to salvage an already sunk reputation, the company has also appointed debt management executive Paul Miles as the new chief financial officer. He knows the right things to say, hoping to put “good governance and superior operating processes at the heart of everything Wonga does”.

This could either be startlingly simple, or monumentally difficult, given the way Wonga has been operating. Hectoring customers under false names claiming to represent fictitious legal companies is not perhaps a “superior operating process” by any stretch of the imagination, but it must have been fun for the employees of the company whose names were actually used.

Sensitivities (because even financial markets can be sensitive) exist towards any move that could reduce the interest on the lending system, to make it more accessible without necessarily being more punitive. This might be due to the mania associated with the bubble of the housing market, something that has become a deity to worship rather than dethrone. As financial reporter Max Keiser notes, this disease can be attributed to the Thatcher period, as if we had not already noted it, when all Britons became housing speculators.

The latest write-offs on the part of Wonga, and the keen manoeuvring to adjust its top staff, have been deemed apologies of purpose. They still want to operate, and have suddenly decided to come clean with a modern, revised conscience. Such a self-discovery, however, is pure illusion. The vital issue there is less to placate the customer than to placate the regulator.

That will not impress the Archbishop of Canterbury, who has made it clear to Wonga’s founder Errol Damelin that he hopes to “compete” the likes of Wonga “out of existence”. Fourteen states in the US have moved to ban payday lenders. Some Australian states have set limits on the maximum annual percentage rate.

With the emergence of new digital market models, be it through Bitcoin, crowsourced funding, and such creations as Metrobank, new financial imperatives continue to operate. But any regulator with teeth will have to consider halting the relentless march of the debt inducing machine that is the payday lender.

Dr. Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge.  He lectures at RMIT University, Melbourne.  Email: bkampmark@gmail.com

More articles by:

Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

September 17, 2018
Melvin Goodman
What is to be Done?
Rob Urie
American Fascism
Patrick Cockburn
The Adults in the White House Trying to Save the US From Trump Are Just as Dangerous as He Is
Jeffrey St. Clair - Alexander Cockburn
The Long Fall of Bob Woodward: From Nixon’s Nemesis to Cheney’s Savoir
Mairead Maguire
Demonization of Russia in a New Cold War Era
Dean Baker
The Bank Bailout of 2008 was Unnecessary
Wim Laven
Hurricane Trump, Season 2
Yves Engler
Smearing Dimitri Lascaris
Ron Jacobs
From ROTC to Revolution and Beyond
Clark T. Scott
The Cannibals of Horsepower
Binoy Kampmark
A Traditional Right: Jimmie Åkesson and the Sweden Democrats
Laura Flanders
History Markers
Weekend Edition
September 14, 2018
Friday - Sunday
Carl Boggs
Obama’s Imperial Presidency
Joshua Frank
From CO2 to Methane, Trump’s Hurricane of Destruction
Jeffrey St. Clair
Maria’s Missing Dead
Andrew Levine
A Bulwark Against the Idiocy of Conservatives Like Brett Kavanaugh
T.J. Coles
Neil deGrasse Tyson: A Celebrity Salesman for the Military-Industrial-Complex
Jeff Ballinger
Nike and Colin Kaepernick: Fronting the Bigots’ Team
David Rosen
Why Stop at Roe? How “Settled Law” Can be Overturned
Gary Olson
Pope Francis and the Battle Over Cultural Terrain
Nick Pemberton
Donald The Victim: A Product of Post-9/11 America
Ramzy Baroud
The Veiled Danger of the ‘Dead’ Oslo Accords
Kevin Martin
U.S. Support for the Bombing of Yemen to Continue
Robert Fisk
A Murder in Aleppo
Robert Hunziker
The Elite World Order in Jitters
Ben Dangl
After 9/11: The Staggering Economic and Human Cost of the War on Terror
Charles Pierson
Invade The Hague! Bolton vs. the ICC
Robert Fantina
Trump and Palestine
Daniel Warner
Hubris on and Off the Court
John Kendall Hawkins
Boning Up on Eternal Recurrence, Kubrick-style: “2001,” Revisited
Haydar Khan
Set Theory of the Left
Farhang Jahanpour
Fascism and Islamic Fundamentalism
Sandy Tolan
After Oslo: How Peace Became a Dirty Word in the Middle East
Nino Pagliccia
The United States’ Disregard for International Law is a Menace to Venezuela and Latin America
Peter Certo
Nobody in the White House is Part of The Resistance
Fizz Perkal
Prison Labor is Slave Labor and We Should Get Rid of It
RS Ahthion
Two Long-Standing American Traditions: Committing War Crimes & Ignoring International Law
Ralph Nader
Where is the Democrats’ Contract with America 2018?
George Wuerthner
The Threat to Montana’s Wilderness
Rev. William Alberts
The Normalizing of Immorality
Chuck Collins
The Wealth Hiding in Your Neighborhood
Russell Mokhiber
Facebook Dostoevsky Postman and the Demise of Deliberative Democracy
Arnold August
Cuba’s ‘Sonic Attacks’ vs Edinburgh University: The 40% Mystery
Luke Ruediger
Smoke, Haze and Hypocrisy at the BLM
Jim Hightower
Amazon is Worth $1 Trillion, So Why is It Robbing Taxpayers?
FacebookTwitterGoogle+RedditEmail