Payday lenders circle afresh

As household debt is set to hit record levels, Wonga targets the market by slashing interest rates to 1,500 per cent a year and lend to those who can re-pay loans.

Loans are big business, with household debt set to hit record levels by the end of next year. But it’s not all loans for luxuries – one in five households is getting into more debt to pay for essentials as the squeeze on family budgets continue.

UK household debt levels are among the highest in the world and climbing. But when the current Bank of England record low rates start to rise, loans than appear affordable now will start to bite further into family finances.

Leaving mortgage payments aside, the average family debt last year hit £9,000. By the end of 2016 it is set to hit £10,000, a level described as “uncharted territory” by auditor giant PwC in its report Precious Plastic: How Britons Fell Back In Love With Borrowing.

PwC warns that even a small 2 per cent rise in the Bank of England’s record low interest rates could hit households with further interest of £1,000 a year.

Demand growing

Despite warnings, demand for debt is growing again, with loans climbing 9 per cent from £219bn in 2013 to £239bn last year.

Step in Wonga, who sees business opportunities where other lenders fear to tread. Having had to write off over ÂŁ200m in bad loans last year it now looks as if it plans to lend to the desperate rather than the destitute.

They plan to relaunch their products and polish up their tarnished image as a payday lender which charges enormous interest rates. But the loans will still come with a hefty price tag.

All payday loan type companies – Wonga is the biggest – are operating under the microscope of the Financial Conduct Authority which licences the sector. New FCA rules have cut some of the charges, and Wonga has cut the annual interest on loans from nearly 6,000 per cent to 1,500 per cent.

The “new” Wonga will be targeting individuals with poor credit history who cannot get a loan from a traditional lender such as a bank. Currently, like the rest of the payday loan sector, they are operating on interim licences while the FCA investigates lending practices.

Payday loans can be seen as a ‘quick fix’ by families hit by short-term money problems. Some of these have been brought on by the DWP sanctions regime which can stop family income at short notice.

Unite assistant general secretary Steve Turner says that growing debt is a warning sign that the record squeeze on wages has left families struggling to make ends meet.

He told UNITElive, “Wonga clearly thinks that there are rich pickings to be had from ‘hardworking people’.

“These interest rates are at eye watering levels, but Wonga must believe that there is a profit to be made from hard pressed families in the grip of a wage siege not seen since Victorian times with pay down £100 per week.

“The question has to be asked of government what is it doing to alleviate the record levels of personal debt, which are a huge warning sign that people are struggling to make ends meet.

“Britain needs a pay rise to put the legal loan sharks out of business – and that should begin with the minimum wage where it has been shown time and again that raising it by £1.50 would be the best investment the nation could make.”