Payday loans firm Wonga is trying to overhaul its image. It has produced a film, 12 portraits, which claims to show ordinary people who have had a positive experience borrowing from Wonga. It has been forced to produce this propaganda because millions of people are drowning in debt as a result of payday loans.
One woman with payday loan debt said she was “so stressed and scared that I’m not sleeping". "I’m constantly worried who is on the other end of the phone when it rings,” she said.
“I have emailed all of the lenders I owe money to but get no response. I have no idea who to turn to.” The fact that payday loans often don’t solve money problems isn’t an accident. It’s how firms make their money.
A full 50 percent of payday lenders’ profits come from fees and interest. Edward Ware from debt advice charity StepChange told Socialist Worker that firms are “incentivised” to lend to people who will struggle to repay the debt.
John, a student, turned to Wonga earlier this year after an accident meant he couldn’t work over the summer. “I had to borrow £800 to pay the rent,” John told Socialist Worker. “I’d tried the bank for an overdraft but they wouldn’t give me one for that amount. “Wonga was a last resort.”
Payday lenders target people who need money and have no other way of getting it. They stress the ease and speed with which they lend money rather than the difficulties people may face repaying the loans later on.
“You apply online and within half an hour the money’s in your account,” John said. “Its website is bright and cheerful. But it is taking advantage of a situation where more people don’t have enough money to get by. When you borrow the money you aren’t thinking about how much you’ll have to pay back later.
“They could quote any figure and it wouldn’t matter. You just need the money to pay the bills there and then.” Wonga snatched £400 in fees and interest from John, 50 percent of what he borrowed, in just six weeks. It’s left him finding it even harder to make ends meet.
“I’ve gone into the autumn term with enough money to pay the rent but nothing else,” he said. “This will affect me for a few months at least. I’m planning to sofa-surf for a while to save money on rent.”
The number of people struggling with payday loan debt is soaring. Edward said, “We helped 36,000 people with debt problems who had taken out payday loans in 2012. In the first six months of this year that figure was already 30,000. We have slow wage growth at a time when living costs are spiralling.
"We have seen a big increase in people who are in arrears with their rent, council tax and energy bills.”
Payday lenders market themselves as providing short-term, occasional loans to resolve short-term, occasional problems. In reality payday loan debt is like quicksand—once you’re in, it’s hard to get out.
“Interest and charges mean debts can spiral from hundreds of pounds to thousands,” said Edward. “People take out one payday loan then struggle to repay it, so they take out another one. Six and a half thousand people with five payday loans or more have come to us for help so far this year.”
Online forums are full of people complaining about Wonga and other payday loans firms. One Wonga borrower, Jeffery, described himself as “caught in the Wonga loop”. “Each month I’m borrowing about £400-£500 to pay off last month’s loan,” he said. Another man referred to “the dreaded circle of borrowing from Wonga each month”.
“At present, I am being paid and Wonga is taking almost all of my wages,” he said. “I immediately have to borrow again up to the point where the payback amount is the amount I get paid.”
A woman with two young children said she borrowed from Wonga because she was “absolutely desperate” but then found herself trapped in debt. “My rent’s gone up yet I don’t get any extra housing benefit,” she said. “All the money I get seems to keep going down while everything else keeps going up. I didn’t have enough to pay my rent and I didn’t have any money for food so Wonga was the only option.”
But having to repay the loan and interest left her without enough money to live on—so she had to take out another loan. “I now owe them nearly £600 but that’s all the money I get to live off for the month,” she said. “I don’t know what to do.”
“Financial problems put a huge amount of stress on people,” Edward said. “People come to us when they’re at the end of their tether—the bailiff’s at the door or there’s no money for rent.”
Worryingly, many people with payday loans find themselves harassed by other lenders and firms they have never had contact with. Payday lenders sell on both debt and personal information.
A StepChange report last month found that over 3.2 million adults in Britain said they were “afraid to answer the phone” because of unsolicited calls about lending. Over 26 million people said they had received unsolicited calls or messages offering them high-interest credit, including payday loans.
Graham took out payday loans after losing his job. He found a new job but his wages were only half as much as he had earned before. He soon had five payday loans with a total debt of £4,800. “It’s too tempting,” he said. “No checks and 15 minutes the money is in your bank.”
Marcus, who got into debt after taking out payday loans, agreed. “It’s the simplicity of it all,” he said. “You can get in deep really quickly.” Graham started to receive calls, text messages and emails offering payday loans from firms he had not had contact with before.
“I have no idea how they got my details, but they seemed to know my financial situation,” he said. He says the volume of calls and text messages rose in the week before his wages were due. “It was as if they knew exactly when I might be needing money,” he said.
“When you’re desperate it’s comforting to know that there was money available. The reality is that you’re digging yourself deeper and deeper into a hole, and these companies know that.”
Sheila took out payday loans after illness stopped her from working. She said “abusive” calls began after she couldn’t repay one of her loans. “Every scare tactic you can think of, they threw at me,” she said.
“It was horrific. I felt completely helpless. It leaves you feeling like you’ve ruined your life.”
Like taking candy from a child
Wonga took £260 from a 15 year old’s bank account after it granted a loan to a customer using his details. The case is one of the most serious cases of fraud to plague the company.
Simon Oliver was on a school trip to Switzerland when he tried to withdraw money—only to find Wonga had got there first. “I was very upset,” he said.
“This was birthday money, Christmas money I’d saved up, and they’d just gone and taken it.” Wonga uses a continuous payment authority to collect money from borrowers.
This allows it to grab money from people’s bank accounts automatically. Payday lenders claim they carry out checks before granting loans. They say they inform people before taking money.
But a report by BBC Watchdog earlier this year highlighted 398 cases of money being wrongly taken from accounts—adding up to £150,000.
The more debt people have, the more likely they are to suffer from mental health problems, according to the World Health Organisation. It added that debt pushes up rates of alcoholism, relationship breakdown and suicide.
The Tories’ attacks on pay, jobs and benefits are driving up debt. So they try to blame debt on poor people being “feckless” or making the “wrong” choices. This stigma and shame attached to being in debt is damaging.
Greg sought help from a debt advice charity after he lost his job and was forced to turn to credit to survive. “I don’t even see my friends no more,” he said. “I can’t tell them what my situation is. I wouldn’t like to use the word embarrassing, but it’s more frightening. You don’t want them to think less of you.”
It’s November so we are already being encouraged to spend lots of money on Christmas. But many people are still struggling with the cost of last year’s. More than 4 million people are still paying off the cost of last year’s Christmas, according to the Money Advice Service.
Around 40 percent of people it surveyed this month said they are worried about the cost of Christmas this year. And more than a million people plan to take out a payday loan to cover it.