Loan company Wonga has been accused of being "cynical" and "predatory" after suggesting students take out high cost short-term loans to buy plane tickets to the Canary Islands.
The company, which offers small loans designed to be taken out over short periods of time, makes the suggestion in a marketing page on its website where it suggests its loans may have advantages over official student loans. However, it does not mention that while it charges an annual interest rate of 4,214%, the current student loan rate is just 1.5%.
On the site it compares its high cost deals with the official student loans, saying: "Student loans are usually far cheaper than your standard personal loan. But there can be a downside – you potentially end up borrowing more than you need, while a nasty debt accumulates for your graduation that could take years to repay."
While it admits "with a Wonga loan the interest rate is much higher", it suggests they are more flexible, saying "you only borrow it for a month and pay the loan back on a date that suits".
It adds: "When your mates tell you about finding a deal on plane tickets to the Canary Islands, you've got some options. Maybe you don't have the money to pay for the whole thing now, but you will when you get your wages at the end of the week. Enter, Wonga!" But borrowing, for example, £300 for a month from Wonga would cost £95.89 in interest and charges.
The site goes on to say: "The problem with student loans is that they potentially encourage you to live beyond your means … Taking on a student loan throws you into the deep end of money management. While you generally don't have to start paying it back until after you earn £15,000, it's still debt you owe that can play a significant role in your credit history."
The National Union of Students (NUS) said the targeting of financially vulnerable students was "incredibly irresponsible" and called for Wonga to withdraw the information.
Pete Mercer, NUS vice-president (Welfare), said: "Students should think long and hard before choosing payday loans over any other form of borrowing, including government-backed student loans."
He added: "Wonga should immediately withdraw this predatory marketing which contains information that appears to be inaccurate, and is aimed at financially vulnerable young people."
Una Farrell of debt advice charity Consumer Credit Counselling Service said she was concerned the company was targeting young people who were maybe getting to grips with finance for the first time. "It's pretty cynical," she said.
Wonga spokesman John Moorwood said the company did not actively target students, and they represented "a tiny fraction" of its customers.
"The two web pages in question are examples of the many search engine optimisation (SEO) pages on our site, which is essentially content covering all aspects of credit designed to help our particular option appear in general internet searches for loans or credit," he said.
"As for the content of those pages, we merely highlight the risk and high cost of unauthorised overdraft charges, plus the potential trap of long-term debt versus a short-term solution."
Morewood said students would need to have a regular income to be considered for a loan. "Our decisions about any students who do choose to apply are based on the same rigorous checks we perform on all applications, but we do not believe working, adult students should be excluded from a popular credit option."
Earlier this week Wonga and other short-term high cost lenders were excluded from big sponsorship deals by Transport for London. The move follows bad publicity of Wonga's sponsorship of travel on New Year's Eve 2010 when the marketing material failed to include the lender's APR.
Graeme Craig, commercial development director at TfL, said: "TfL is currently working on a new sponsorship policy which will set out the type of companies from which TfL would, and would not, accept corporate sponsorship in the future. TfL has no plans for corporate sponsorship that involve payday loan companies."
Wonga has also attracted criticism from parents for advertising during children's programmes on Saturday mornings. Sarah Ashwin said her children were watching Milkshake on Channel 5 when an advert for Wonga was broadcast among adverts for children's toys.
Describing the attempt to get "hard-pressed parents" to take out loans with an interest rate of 4,214% as "totally cycnical", she said: "This is the kind of figure likely to propel the most disadvantaged families into the arms of the debt collectors, and perhaps even into homelessness."
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11 January 2012 4:52PM
Given that there is essentially no reason to use Wonga if you have a credit card, despite all they say on their website about being responsible, Wonga are blatantly targetting people who cannot get a credit card.
Wonga's target audience is mostly composed of people who desperately need to pay a bill before payday, so end up using them and paying that plus half again the following month.
It's straight-up exploitation - taking those most vulnerable, bailing them out for now and then taking all they have later.
11 January 2012 4:53PM
Sometimes you really are left wondering how some people sleep at night...
11 January 2012 5:03PM
A loan from The Student Loans Company does not affect your credit history.
11 January 2012 5:04PM
So when Cameron and other defenders of the wealthy say...
"we must tackle the something for nothing culture"
- they obviously don't mean legal loan sharks.
These people are truly the lowest of the low - but are in many ways no different from the major banks who supply our money as debt.
11 January 2012 5:06PM
Sometimes you really are left wondering how some people sleep at night...
Probably in this £4m bed.
11 January 2012 5:10PM
Why the hell should moneylending be banned? If people cannot read, then it is their problem.
When did "caveat emptor" be replaced by "ban everything to remove the need for thinking?"
Educate people in financial responsibility, the risks of borrowing money at high interest rates, and basic home economics, and the problem would resolve itself. Although this requires crediting people with the capacity to learn, rather than thinking for them.
11 January 2012 5:10PM
But we all know, don't we, that students are getting cleverer and cleverer, judging by the exam results?
I'm sure they're clever enough not to be taken in.
11 January 2012 5:15PM
Come on Guardian, do some proper research!
""The two web pages in question are examples of the many search engine optimisation (SEO) pages on our site,..."
This is utter bollocks. It is very simple to see that it is one of just eleven pages linked to directly from the footer of their homepage. That is direct marketing - a link straight from the homepage implies high importance to the search engines, and hence high importance to Wonga's business.
Did anyone at the Guardian actually look at the Wonga site before writing this story? You don't need to be an IT expert to spot this stuff either.
Now Guardian - I've given you the lead, go and ask Wonga to comment on their fib.
11 January 2012 5:21PM
Arrogant AND ignorant - written by someone who clearly has never had to consider such an option.
Does it not occur to you that people who take out payday loans are DESPERATE and may have no access to a credit card etc?
So your response to someone in desperate need of funds - is to allow them to be exploited and then to suggest that they are illiterate?
Loathsome.
11 January 2012 5:25PM
The Government should pass a law providing for a Maximum Lending Rate, say base + 15%.
Any loan that then charges an APR more than that when fees have been taken into consideration should forfeit including the principal.
Having said that, London.Gov.Uk appears to be in bed with these sort of people, so perhaps this won't happen.
11 January 2012 6:19PM
Welcome to Britain where extortion is legal.
11 January 2012 6:22PM
Read somewhere there's only 500 tons of pure gold in the entire world. Not sure if that's true. So 100kg of that on a bed? It also says in the form of Gold leaf, and i'm pretty sure the entire bed could be painted in Gold Leaf and it wouldn't even amount to 1kg of gold leaf required let alone 107Kg.
And if it's in the form of Gold leaf would I be right and saying the gold cannot be recovered say once the new owner who's clearly thick goes bankrupt and needs his $5million worth of gold turned to say cash?
And what if someone wets themselves and soils it, what would be the erm 'repair' costs?
If anyone can confirm this bed does indeed 107kg of pure 24ct gold pls, in order that i may further confirm what i'm beginning to suspect; that civilisation is ultimately pointless.
11 January 2012 6:34PM
It's a great idea in theory and I wish it were workable (well the maximum lending rate bit anyway).
Unfortunately in practice companies simply wouldn't lend money to certain people - those with bad credit ratings or a history of defaults etc because the risk would outweigh their reward.
Said people would be forced to use unlicensed loan sharks and money lenders who would still charge the same crippling interest rates.
11 January 2012 7:17PM
It's clear that they know rather more than you about SEO - what are your qualifications? Google spiders the site as a whole and looks at the relationships between pages (ie where they are linked from). The percentage of clicks on footer links will be minute (a fraction of a percent, probably only test clicks) so in no way is this any kind of direct marketing.
Be careful with your comments!
11 January 2012 7:24PM
S/he was blatantly trolling.
On topic, there seems to be more of these sort of companies appearing on telly recently. I have absolutely no financial sense and don't really understand the money market, but on a purely ethical basis, there must be some way of stopping this sort of exploitation.
Correct me if I'm wrong, but I have vague memories of the government-backed Sparkasse in Germany offering very short-term loans at a fraction of the APR revolting companies like Wonga charge. If we (the government, or whoever) own some of the bailed-out banks, couldn't a similar thing be offered here?
11 January 2012 7:26PM
Most of the things one "reads somewhere" are bullshit, and this one's no exception.
Estimates for all the gold mined until the end of 2009 are around 165 thousand tons, so the above figure would be off by a mere factor of 330.
11 January 2012 7:39PM
Fat chance.
Germany is a civilized country, and the government is well aware of the severe economic and social damage caused by loan sharks. The U.K. alas, tends to conform far more to the the American model, where the liberty of few individuals to "make money" is considered more important than anything else.
11 January 2012 7:41PM
Wonga.com
Owned by Dawn Capital.
Chairman of Dawn Capital: Adrian Beecroft
Adrian Beecroft, Tory donor and author of a report commissioned by the Millionaire's Cabinet, a report whose recommendations included the removal of the Unfair Dismissal legislation. Sources:
http://blogs.telegraph.co.uk/news/jennymccartney/100114096/beecrofts-report-is-an-own-goal-for-the-coalition/ and
http://www.guardian.co.uk/commentisfree/2011/nov/23/employment-law-the-sack-race
Small world, isn't it. Amazing world, too, when even the Torygraph think this guy is a vote loser.
He's still scum though.
11 January 2012 7:46PM
Sad, but true.
I hate this world.
11 January 2012 7:49PM
Lending at a set percentage above base should be illegal. If I leant someone money with these interest rates I would be up before a judge.
How this type of exploitation is legal beggars belief. If Mr spokesman can't see the ethical problems in the way this company do business then he is scum of the highest order.
I would fall on this type of company from a great height were I in a position of power.
11 January 2012 7:51PM
I was shocked recently to see Wonga.com advertising on the Guardian's online pages. I hope this article is indicative of an end to it.
11 January 2012 7:56PM
Interest is theft. All it does in cause inflation so in effect people saving "normal" amounts of money gain nothing from it, people borrowing money get stung by it and the mega who don't really care pay people to do tricks with it.
Whoever invented it should be first against the wall when the revolution comes
11 January 2012 8:00PM
Sliding ...
You into lifelong unpayable debt.
Thats how we role here !
11 January 2012 8:02PM
Yes and while we're at it let's get rid of UCTA, Consumer Credit Act, Sale of Goods Act et al.
Are you for real?
11 January 2012 8:03PM
While I'm not prepared to pay for access, I do try to inform myself from a wide range of online sources..not only UK, but US, Oz, Canada, Thailand..
I very rarely comment.. but feel urged to now..
Over the past few months it appears to me that both the Guardian and Independent comment sections have been invaded by opinionated, narrow minded bigots.
Comment is free..and I uphold the right of all people in our society to express their views,
However..exercising my right..I am disillusioned as well as horified to read some comments about Wonga.
Some months ago, I was disturbed to catch the briefly projected interest rates charged by Wonga.
In my opinion, this is legally allowed loan sharking of the most exploitative kind.
While I agree that people should show prudence and commonsense in the way that they run their lives and finances.. I consider the 'caveat emptor' comments completely out of touch with the reality that many people face..often due to no fault, work shyness etc of their own..
My studies of US history, suggest that so many 'impoverished' people were faced with the the choice between two evils..unmanageable repayments to loan sharks or criminality/ destitution..often inescapable due to the former..
11 January 2012 8:04PM
How would you persuade me to lend you money (if I could) assuming you're a stranger?
11 January 2012 8:36PM
Thanks
Adrian Beecroft ,lets remember that name
These people are scum
11 January 2012 8:40PM
It's not that people cannot read, but that some do not read the small print. Here in New Zealand the Govt. is considering setting a maximum APR beyond above which lenders cannot charge interest and imposing restrictions on punitive penalties for non-repayment, such as the amount to be repaid can never be more that double the amount borrowed. We've had cases were people with little or no money have borrowed $100 for a second hand fridge or shoes for the kids and ended up owing $5,000 after compound interest and default penalties.
These lenders are predatory loan sharks who should not be lending money to people who cannot afford normal loans.
11 January 2012 8:46PM
Seems they have had a change of heart
http://www.wonga.com/money/wonga-student-loan/
Though if "Wonga does not target students", then you wonder why it is necessary to have 2 SEO pages specifically relating to students. It seems to work, Wonga is the top non-sponsored hit in Google using "student loan fast".
http://en.wikipedia.org/wiki/Payday_loans_in_the_United_Kingdom
11 January 2012 9:02PM
The Payday Loan business model is completely unworkable and ONLY works because people aren't clued up and fear pseudo 'authority'.
There is a legal requirement for a 14 day "Cooling Off" period so if you decide against taking the loan within 14 days then the interest stops right there and you then have a further 30 days to pay back what you owe..
So, you take out a 14 day loan and then don't have to pay it back for say 40 days (give 4 days leeway for your notification in wiriting of wanting to cancel the loan to get to them by registered post) but only with 14 day costs maximum.
This negates all their profit making from people feeling forced to roll-over their loans and being tied to the 4057% APR!
As soon as people realise this, these lenders will move on elsewhere...
11 January 2012 9:08PM
Blah, blah, blah. Basically you don't care.
11 January 2012 9:10PM
My mate went round town the other week and borrowed as much money as he could from every single pay day loan shop he could find. He has no intention of paying it back.
11 January 2012 9:15PM
There's always someone prepared to defend the indefensible.
You know exactly how these parasitic money lenders work. They have no morals whatsoever and are driven by greed and the opportunity to exploit vulnerable people.
Our entire system works to keep people as financially ignorant as possible. The cretinous media showers the poor in example of thickwit celebs and other non-entities etc enjoying the high life. They and advertising industry friends rub wealth in our faces and humiliate the poor for not being able to afford things. The finance industry seeks to hide their extortionate costs and charges, and tries to tie people to complex, grossly unfair contracts.
But yes, it's always our fault, isn't it. So keep on excusing the bastards.
11 January 2012 9:19PM
120-140,000 tonnes is what is supposed to have been mined but of course some of that will have been used up in industry.
All the gold in the world that has been mined would fit in easily in 3 Olympic, 2m deep, swimming pools, apparently.
11 January 2012 9:23PM
I'm still waiting to meet a decent Tory. Well done for digging out this nugget.
It's high time multi-layer companies were forced to very publicly divulge the higher-level ownerships so that we can know whether some of our money is going to fund the Tory party. There are many street-level companies that we buy from that are owned, several layers up, by major Tory supporters. If I knew, without having to do a lot of digging, I'd then avoid all companies in the chain.
11 January 2012 9:25PM
Let the diving commence!
11 January 2012 9:25PM
Was that in the Google ads pulled in at the bottom of articles? We can ask to have them removed and for certain types of ads not to be allowed in for particular articles( I thought we had asked for payday loans not to be shown at the bottom of this article for instance), but as I can see a payday lender in the collection here, it doesn't alway work. Sigh.
11 January 2012 9:26PM
Well Done NUS and the CCCS, about time someone brought attention to this scandalous business. What a blatant rip off these loans are. Bloody scandal if you ask me!
11 January 2012 9:31PM
I DO want the option of short-term lending when I have bad credit ratings with the credit agencies (an almost arbitrary and Kafka-esque system itself).
The fact is it's not worth a business's effort to offer short term, small amount loans at good APRs ... so they don't ! If you have bad credit, you can't get a credit card or an extended overdraft so you need other options like these companies.
If someone is selling say a 1959 Les Paul in Loot for £400 but I don't currently have £400 then I would happily pay hundreds more in massive APR just to borrow and make the thousands in profit.
If the cost of borrowing is costed in to your overall plan and you can make a profit then they provide a good service. I'm always watching vintage items pass my nose on Ebay that I could turn a good profit on but don't have the up-front funds to hand.
We shouldn't ban these businesses nor the APRs, only their marketing practices.
11 January 2012 9:37PM
The Halifax charges 5 quid a day on it's current account overdrafts. That's 150 on the month. High street banks that are owned by the country are bigger sharks than the official sharks.
11 January 2012 9:40PM
I once worked for a financial company (I obvisouly can't say who) and I came across a customer who wanted a loan. When going through the client's details I noticed he had been using Wonga and other payday loan companies around 3 times per month for the previous 3 months. I had to ask why and the poor guy was told that if he continued to use them for around 3 months his credit rating would be perfect. He wasn't so thrilled when I explained otherwise.
So many people are being told the wrong information and as people are growing more desperate it makes me so angry that companies like this are making a profit. Ah well, someone had to jump on the bandwagon.
11 January 2012 9:48PM
I reckon you'll find that that the actions of your mate are theft - and could be charged in court as such.
Fully recognise that many readers will believe that W's APRs are also theft. But so far the OFT has not ruled against them.
But the attitude of your mate (and your apparent pride at his / her actions) leaves me despairing for the future.
11 January 2012 9:56PM
You're right but the thing is that the individual places probably won't take any action because it's not costed in (the straight losses of a percentage of customers not paying it back IS costed in, but legal costs of pursuing them arent) and hence why they prefer to recover say 33p on the £1 by selling the debts to DCAs.
Remember that interest rates are so low these days for the banks and credit companies that the profits made on the customers that do pay swamp any loses.
Thing with this guy's mate is if there is any info shared between the companies for security purposes and this guy is flagged up in the local area, then they may well decide to present evidence to the police..
11 January 2012 10:01PM
I don't understand why anyone would get a short term loan so they can go on holiday.
£95 in interest is a lot of money to a student. If they really wanted to go the canary islands they could easily just save their wages for the trip at a cost of £0 in additional payments
11 January 2012 10:02PM
I thought that if you went round robbing people you got locked up. When these payday loansharks like Beercroft's company are are breaking out like tertiary syphilis sores on every high street and just as difficult to remove, something's wrong. Let's hope that at least some of the students are taught about compound interest while at university.
11 January 2012 10:04PM
Oly under a Tory Gov.
11 January 2012 10:12PM
To those who mentioned that students won't be dumb enough or will know to read the small print, these sort of things go out of the window when you're desperate, and desperate is exactly the situation this company wants its customers to be in.
11 January 2012 10:26PM
I can't be sure...I recall it appeared on one of the film pages on a Friday in December. My immediate, and on reflection rather silly reaction (for want of any other idea) was to tweet @arusbridger to say how shocked I was that the Guardian would carry a Wonga ad. I think it featured some gauge-style, 'this is how much you can borrow' graphic, which might suggest it was something more than a Google ad, but I would be very happy to be proven wrong.
I'd be thrilled to be fully assured that the Guardian does not, and will not, knowingly sell advertising space to Wonga or their shameful ilk.
11 January 2012 10:26PM
There is no compound interest if you realise that there's an 14 day opt-out clause in every single one of these payday loan contracts...
Can't stress that enough - spread the word!
11 January 2012 10:34PM
Time these people were hounded out of society (much like the old bailiffs were hounded out of working class communities)...