Campaigners have raised alarm over British households continued overdependence on payday loans despite Wonga’s collapse. This can be attributed to the current economic pressures. British households must rely on high-cost short-term debt to survive the tough economic conditions currently.
The FCA put Wonga on administration 31st August 2018 after countless compensation claims hit the payday lender. Currently, Wonga has approximately 200,000 customers who owe the lender over £400 million in short-term loans. According to the FCA, those customers should continue making repayments.
Leading debt charity StepChange believes there are over a million Briton households which are still in need of quick loans that attract high-interest rates despite the collapse of Wonga which was among the biggest short-term loan lenders in the UK.
Benefit cuts, austerity measures, sluggish pay increases, job insecurity as well as the rising cost of living are to blame for the increasing financial pressure among British households according to Campaigners.
According to Peter Tutton, StepChange’s head of policy, the payday loans market wasn’t “finished” by Wonga’s predicament. There is constant demand for payday loans among people who rely on this type of credit for survival.
StepChange estimates a seventh of Britain’s population borrowed loans to cater for household needs in 2017 with approximately 1.4 million taking out high- cost credit. The average payday loan debt for StepChange’s clients in 2017 was approximately £1,519.
According to Damon Gibbons, a director for campaign group Centre of Responsible Credit, Wonga’s collapse isn’t the end of UK’s debt problems. The economic pressure on British households remains the same and shows signs of getting worse. Gibbons doesn’t see the end in sight currently.
Bank of England (BOE’s) take
The BOE is increasingly concerned about increasing consumer borrowing lately as British consumers borrow past levels seen during the financial crisis. According to the BOE, borrowing is currently three times the annual growth in wages. Britain’s debt pile from personal loans, credit card loans and car loans is at a current high of £213 billion. The BOE doesn’t track growth in payday loan lending separately which shows a likelihood of the consumer debt figures being conservative.
Official statistics released this summer show British households spend approximately £900 more than they earn in a year. This statistic shows that millions of Britons have deficits for the 1st time ever since the 1980s which was characterised by a credit card debt boom.
Economists blame benefit cuts, stagnant wages and high inflation levels for the past two years (since the European Union referendum) which has seen a rapid devaluation of the British pound exerting pressure on the cost of imports.
Money Advice Service take
Although spiralling debt problems are real in Britain fuelled by high-cost loan providers who charge exorbitant rates, credit still provides value. According to Money Advice Service, 40% of UK working adults have accumulated less than £100 in savings. What’s more – such workers still need loans to cater for emergency expenses despite the fall of lenders like Wonga. The most affected demographic is – women, young people as well as those residing outside London and areas like the south-east.
According to Office for National Statistics data, over 50% of individuals between 16 and 24 years surveyed in July 2016 to December 2017 stated they were unable to survive for over a month if they lost their job.
According to Lucie Russell who heads Money Advice Service fair by design campaign focused on seeing better alternatives to payday lenders, the debt problem is becoming bigger. Many working Britons don’t have enough to live on which translates to millions living in poverty.
Since the FCA capped the total cost of payday loans, payday lenders have dwindled gradually. The cap is believed to be part of the reason why Wonga collapsed. The lender was known for charging exorbitant rates and fees. When the FCA introduced a cap, Wonga’s astronomical profits reduced rapidly. Coupled with countless consumer claims on unfair lending practices, the lender’s fate was sealed.
Campaigners are pushing for the FCA to extend the cap to many other forms of borrowing including overdrafts and credit cards to bring Britain’s debt problem under control. Labour has already shown interest in changing policy. According to Labour MP Stella Creasy, new payday lenders have already started capitalising on the market gap left by Wonga. There are also fears of illegal loan sharks exploiting Wonga’s collapse.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.