Recently it was revealed by McKinsey, the consultancy, that the UK debt to GDP ratio stood at 507% in the middle of 2011. Robert Peston reminds us that this is up from 487% of GDP in the second quarter of 2008, and, incredibly, from around 300% in 2003 – before the credit boom. Only Japan is more indebted with its debt to GDP ratio at 512%.
Further still, it is the financial sector, mostly in the city, which accounts for 219% of the debt. Household debt experienced a modest decrease, though is still very high.
To rub our noses in it, the Royal Bank of Scotland – undeterred by the reputation left by Fred “the shred” Goodwin – has a pot of £500m to spread liberally around its investment bankers in bonus pay.
This gave grounds for the Wongaforum – a forum, as you might guess, that talks about all subjects wonga, and beyond – to post on how terrible it is that RBS bankers are set to receive such fortunes, while banks themselves receive a downgrade from Moody’s and the rest of us suffer.
This is because with the banks not doing their jobs properly, not heeding to calls to further roll out basic bank accounts and overdrafts (an intervention which didn’t cause the banking crisis, nor would hurt the banks one iota), forcing people into the hands of pawnbrokers and high street shops who promise to cash cheques for high fees, places like wonga are able to pretend to have the moral high ground.
As Stella Creasy recently put it, “Payday loan companies are trying to promote a veneer of respectability”.
Better still, payday loan companies – which Wonga are despite their own denial – are so acutely aware of how horrid an image loan sharks have, that they will do anything to deflect the notion that they are similar.
And to a large extent this is true, though Wonga are also trying to deflect the notion that they are anything like other payday lenders on the high street.
This is because what this trade boils down to is one where sub-prime consumers are given money at high interest to pay for things we in the west would consider basic necessities. Regardless of whether Wonga are providing a service nobody else delivers (banks especially), profiting from the poor looks bad – and for good reason.
They’ll say they stop people from calling on real loan sharks who charge interest rates of percentages in the tens of thousands, though profit from poverty is still frowned upon.
Wonga will even say they don’t target the sub-prime consumers, but there is not enough money to be made in appealing to the Middle classes who have a distrust of banks, and students alone. Though of course any such proof that Wonga have no desire to target this market is hidden behind what they call commercially sensitive data.
In arguing their case, Wonga end up sounding just like the labour union workers in 1930s America did when arguing that low income earners should not be excluded from the credit market. Why, if everyone else could buy on the promise that money will be paid later on, could they not join in? Why were the banks excluding them?
Effectively, Wonga are trying to make a progressive case for their cause – and this is born out of a realisation that they must shift the image both of the loan shark and the payday lender today.
Let’s not forget, though, that banks are allowing Wonga to have this moral high ground, which means that any campaign effort against the profiteering of the payday loan industry, should target banks too, and call for the retail arm of banks to do its job properly.