Wednesday 5 February 2014

Great news for Wonga shareholders!

At the back of my mind, I had been thinking about this whole Wonga thing about lending money to high-risk borrowers, i.e. welfare claimants.

If you lend money to a welfare claimant, who doesn't have two brass farthings to rub together, you would struggle to get your money back, which is why Wonga have colossal write-offs equal to nearly half their headline interest income (company accounts 2012).

But there is one body who can easily gets its money back, and that is the government which is paying those benefits in the first place - it can recoup such short term loans by knocking them off future payments (the 'right of set-off').

So I was thinking, the government could make a massive dent in Wonga if they made it easier and simpler for welfare claimants to get small advances, e.g. to buy a second hand washing machine for £100, which would save them from having to spend £5 or £10 a week at the launderette. How you filter out people who will take the money and spend it down the bookies, I do not know, that's their problem. If they spend it on booze and fags, then the government wins out anyway, because three-quarters of what they spend comes straight back as VAT and duty.

(They could do exactly the same thing with payday loans, if people are too embarrassed to ask their employer to give them an advance or pay them weekly instead of monthly, or indeed daily instead of weekly, the government can get its money back via PAYE codes).

It turns out, that the government/local councils do exactly this via the Discretionary Social Fund (e.g. Brighton)…

… which is now going to be axed.

3 comments:

Bayard said...

"MINISTERS were last night accused of driving people into the arms of payday lenders by axing a £175million a year "crisis" fund."

Presumably that is the whole point of the cut: to harry the poor (i.e. non-voters or non-Tory voters) and to cut down on public competition with the private sector. Win-win!

JimS said...

"So I was thinking, the government could make a massive dent in Wonga if they made it easier and simpler for welfare claimants to get small advances, e.g. to buy a second hand washing machine for £100"

Many years ago my mum was a social worker. She had arranged for one of her 'clients' to receive a 'free' second-hand cooker. On her next visit she was lucky to be missed by the falling cooker after her 'client' pushed it off his flat balcony. Apparently he wanted a new cooker, now that the second-hand one was 'broken'.

Mark Wadsworth said...

B, presumably.

JS, I'm sure she has lots of anecdotes like that because she was a social worker. That's not a representative sample of all the people who take out Wonga loans.