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November 29, 2012

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Rahul

V. thoughtful Chris. I'd add that the reality of the benefit cuts that are currently being executed by the government support the libertarian position.

Simon

I think there is a role for the state to intervene in this insane, which could be classified as an information assumetry.

Lisa Ansell

I dont think you can look at the issue, or Stella Creasy's position without considering the context in which this is happening. Austerity has just deliberately increased the deficit people live at. Tax credits subsidised mortgages and arguably this bit of the credit market has been given ideal conditions by austerity that Stella Creasy has sold as Labour's position, conditions helped a great deal by the penalties offered by mainstream lenders. Payday loans are a natural by product and consequence of austerity. A government and bank created market. Debt is not neutral, debt means control of your life. I dont think the problem here is the payday loans companies alone though.

TAx credits, if they disappear into the undeliverable universal credit, will bring with them the same level of control usually applied to those on out of work benefits, is now being applied to those in work. From where I sit, statist or libertarian, the combination of debt and welfare, and the willingness to expand this part of our credit market for austerity, shows that I don't want debt or welfare or the control that comes with them. But in an economy of part time, insecure employment it would appear that is no long an option.

Lisa Ansell

Edit function would be lovely

Carl

I replied to you but couldn't put it in the comments (which I can now, oddly). It is here: http://www.leftfutures.org/2012/11/payday-loans-not-a-black-and-white-issue-in-reply-to-chris-dillow/

FromArseToElbow

Wonga and their ilk have two USPs relative to pawnbrokers and loan-sharks.

The first is that they're an online business. This means much lower operating costs compared to high-street lenders. Though some of this saving is offset by higher advertising, the claim by Tom Worstall that it's expensive to run such an operation is specious. They don't have shops, they don't have to handle collateral, they don't need to employ heavies.

Their second USP is that they are a data management company, rather than a finance firm. Loan application assessments are automated (which is why they can boast of quick decisions), proven repayers are cultivated through spam (repeat business is crucial), and defaulters can be easily barred.

As Simon noted, the real issue here is information asymmetry. People naturally assume that usurers will charge usurious rates, and some even rationalise it as the result of higher default risk and higher transaction costs. What few "customers" appreciate is the extent to which Wonga are simply filling their boots.

They are guilty of the same predatory practices that more widely produce the wage repression which creates the market for payday loans in the first place.

Keith

Finance seems to be composed of sharks but state and employers keep throwing people into the water via poverty so they get eaten by the sharks!

I get increasingly disgusted by the use of the words Libertarian and Liberal when the people who use them think poverty involves some kind of freedom.

"The law, in its majestic equality, forbids the rich and the poor alike to sleep under bridges, to beg in the streets, and to steal bread." (Le Lys Rouge Anatole France.

Luis Enrique

Does anybody know what sort of profits / returns Wonga makes?

Pinkie

"Should political change be piecemeal or radical? Left libertarians say the best way to help the worst off is not to restrict payday lending, but rather to raise their incomes, for example through a high citizens' income.The statist left replies that this option is not available."

Hang on, both those options are 'statist'.

Sam

I think everyone (including their customers) understands that the likes of Wonga are much more expensive than a normal loan if you keep the money long-term, and the large gentleman with the notebook who calls at your door is even more expensive, and everyone understands that nobody would borrow from Wonga if they had, say, a credit card available.

The question shouldn't be "are payday loans so evil that we should ban them" but "if payday loans are to expensive, should the state step in as a cheap lender?" Yes Wonga makes a proft - it made 45 million quid last year, and loaned out 600 million quid or so. They're making good money, but it doesn't look like there's room for someone to undercut them dramatically and still make money.

Do people want the state to take on the role of mass-market short-term emergency lender? I don't think so. Quite apart from anything else, if the state was able to operate that efficiently, it might start by giving people faster access to benefits, rather than it taking weeks between someone applying for a benefit and the money showing up.

Simon

*instance

Herman Brodie

Compared to what we consumers will sometimes do to ourselves when it comes to money, even Wonga can start to look like an angel. Have you been Wonga'd? http://www.unexpectedutility.com/blog/behavioural-living/have-you-been-wongad/

Pure Cash Loans

You state, "The danger with payday lending is that the availability of credit will tempt people to spend more than they can afford and so such loans - rather than being a rare last resort in an emergency - will become regular, and thus onerous."

But, in today's poor economy, many people - mostly single mothers - use these loans to meet everyday expenses. Take that away and then what?

Quit trying to fix the payday loan industry - who is just meeting a need - and work on ways to take the need away - like fixing the economy.

Neil

^ wonder how much was that one worth. 50p?

Tim Worstall

"the claim by Tom Worstall that it's expensive to run such an operation is specious."

Rilly?

"Yes Wonga makes a proft - it made 45 million quid last year, and loaned out 600 million quid or so."

Net margin is 7.5% of money lent.

If they're charging 4,000 % APR then I rather imagine that they must have some pretty hefty costs in there then.

Rahul

Tim - its quite possible they are taking large reserves for possible loan losses (PDA - provision for doubtful accounts). And this is why net margins are so low. Then again, this would show up in the balance sheet/ cash flow statements. Without reading those, we won't know whether the net margin is an accurate figure or not.

Päivi Kemppi

Many of poor people are really desperate to get a payday loan which is one of their choice when they are having a financial problem.In Finland payday loan is alternative way to solve their financial problem like paying bill which not listed in list.

Alicia@Payday Loans@

You say: Should we protect people from themselves?- I would like to re-phrase the question: Why not people start thinking before applying for payday loans? I agree that this is a temptation, but there are millions of those who can resist it even though they do have critically low wages and big families to feed. It is not our or Wonga’s (or any other payday lending company) responsibility. It is mine, yours and whoever else other responsibility. Don’t blame others and start from yourself. Be a grown up and be ready to face consequences of unwise actions.

paydayloan

V. thoughtful Chris. I'd add that the reality of the benefit cuts that are currently being executed by the government support the libertarian position.

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