Anorak News | Thank heavens we regulated Wonga into bankruptcy, right?

Thank heavens we regulated Wonga into bankruptcy, right?

by | 8th, August 2018

Or at least that we managed to regulate Wonga into near bankruptcy. For that’s what was done when we imposed limits upon the interest rates that they can charge. We set their business off into a declining spiral which brought them close to bankruptcy:

Britain’s biggest payday lender, Wonga, has received a £10m emergency cash injection from shareholders to save the company from going bust. The short-term loan firm said the development was a way of coping with a surge in claims from former customers seeking compensation.

The claims, said Wonga, related to loans taken out before 2014, when outrage over its payday lending offers prompted new rules to cap the cost of borrowing.

The thing is, lending small amounts of money to people for short periods of time is something expensive to do.

Leading technology venture capital funds Accel Partners and Balderton Capital have taken part in an emergency fundraising in the last few weeks, in news first reported by Sky News.

So, when we insist that people don’t charge enough to cover the costs of that expensive thing then they’re likely to go bust:

Wonga, which employs about 500 people, has been loss-making for the last few years after encountering a string of regulatory hurdles such as the City watchdog’s cap on the cost of short-term loans.

So, as it used to be. Company makes loans with high interest rates. It makes a profit and, obviously, the people taking out the loans were happy enough. Because they took out the loans.

This shocks people who practice GoodThink, that people will be charged that much in interest. So, the law is changed so that high interest rates cannot be charged. What happens next?

Wonga nearly goes bust and large numbers of people aren’t able to borrow the money they want to. Which is a problem, isn’t it? Because the people taking out the loans obviously believed that the high interest rates were worth it to them. It was other people, those GoodThink types, who stopped them. But the GoodThink types haven’t solved the problem of people needing small loans for short periods of time – that expensive thing to provide – they’ve just made it illegal to do so at a price which makes sense.

And yes, it really does work this way. This is the Federal Reserve (like the Bank of England, just in America) on the subject:


Cap the prices and you abolish the industry. But you’ve still not solved the problem of people needing the loans, have you?

Posted: 8th, August 2018 | In: Money, News Comment | TrackBack | Permalink