Wonga are probably the most famous of this relatively new breed of lenders who have built their business on lending small amounts of money for short periods of time. Their customer base is typically made up of those who could be described as having more month than money, which has led to them popularly being labelled payday lenders.

Wonga’s main argument is that through the use of their online sliders (see above image of sliders from the Wonga website) a client knows exactly how much they are borrowing, how long they are borrowing it for and how much needs to be repaid. This is a powerful argument for transparency in that the client knows exactly what they are getting into and what is required of them. Furthermore in the top right corner above the sliders there is a link to an article which asks whether Wonga is necessarily the right option. This further enhances Wonga’s transparency, but does transparency make something ethical? Let’s consider some more facts before discussing it.

How much does Wonga cost and how does this compare to other providers?

Loans are typically unsecured – or at best secured against an incoming payment like a salary – and have high interest charges. The table above shows how much Wonga charges for just borrowing £100 between 1 and 15 days. The actual interest rate is based on the length of the loan and the APR figure is based on the same rate being applied for the whole year. At the time of writing a more traditional lender would offer an APR of approximately 4% on a secured loan and 25 – 40% on an unsecured loan which is comparable to most credit cards. This is a significantly lower amount than a Payday lender who can charge up to 5583% although the figures here show a maximum of 2394.39% which is up to 100 times higher than regular lenders providing an unsecured loan. This amounts to legal loan sharking.

Who uses Wonga?

Payday lenders like Wonga are often used mainly by those who can least afford it. In the introduction it suggested that those who use it are those who have more month than money. This can often lead to a spiral of debt. If a client wishes to borrow £100 for 9 days repayment of £115 is required. Then if the client is in a similar position the following month they will need to borrow £115 (the same £100 + £15 to cover what they paid Wonga) and if they were to do it over 9 days again this would cost the client a total of £131.35 a further cost of £16.35. Then if the client were to do the same the situation would just compound month on month. Wonga and other payday lenders are aware of this.

How does Wonga justify such high rates?

Wonga and other payday lenders defend their actions by citing their transparency and explaining that they use similar credit scoring as other more traditional lenders. Another unspoken reason for such a high rate is the higher potential for default on any loans they provide as unsecured lending is at the core of their business model. See Wonga Defends Itself for more information.

Controversy with the Church of England (from the BBC News Website 26 July 2013)

The Archbishop of Canterbury, the Most Reverend Justin Welby, said he was “embarrassed” and “irritated” that the Church of England invested indirectly in online lender Wonga. It comes after he told Wonga the Church would try to force the firm out of business by helping credit unions compete with it.

Archbishop Welby told the BBC he wanted the Church’s investment rules to be reviewed after discovering that the Church had indirectly invested £75,000 in Wonga (admittedly a small percentage of all their investments totalling £5.5bn).

The Church of England has subsequently withdrawn any investment in Wonga.

So the question is Are Wonga ‘Wrong’a?’

 © 2014, Richard Horton Omega Support Services

Exercises

Pre-Reading Tasks

1. The word Wonga is British slang. What does it mean? Do you have any slang words in your language that mean the same thing?

2. Have you heard of Wonga? What do you know about them?

3. Do such organisations exist in your country? How are they governed?

4. What kind of a reputation do such providers have?

5. Who would use their services?

6. Do you think the way they operate is fair? Why (not)?

Comprehension

1. On what basis do these new lenders, such as Wonga, build their business?

2. What does the author mean by ‘more month than money’?

3. What does transparency mean when describing Wonga?

4. Why are companies like Wonga sometimes known as Payday Lenders?

5. What is the difference between a secured and unsecured loan?

6. How do Wonga’s rates compare to other unsecured loans?

7. What is meant by legal loan sharking?

8. What kind of people typically use services such as those provided by Wonga and how can it lead to a spiral of debt?

9. What does ‘the situation would just compound month on month’ mean?

10. How do Wonga defend their high rates?

11. Why did the author choose Are Wonga ‘Wrong’a? as a title for the article?

Speaking *

1. Wonga’s base line is 1% per day and their strongest defence is the transparency they show in all their dealings. Could they show more transparency and in what way(s)?

2. The article says that Wonga are aware of the type of people who used their services and hide behind their transparency. Is it ethical for a company to behave in such a way?

3. What circumstances can lead to people getting into a spiral of debt and can it be prevented?

4. Wonga are able to provide such a service because a niche has developed in the market. Are there any other alternatives for people in need? Should more alternatives be made available? If yes, how and in what way?

5. The Archbishop of Canterbury (the head of the Anglican Church) wants to put Wonga out of business. Does the church have the right to speak out about such things and Should they be involved in such an activity as putting a company out of business? Explain your answer.