Loan sharks: how do they affect vulnerable customers?

10 Sep 2018

One of the biggest loan sharks of this decade, Wonga, officially called in the administrators on August 31st, 2018. However, they are not, and definitely will not be, the last of these ‘loan shark’ type companies to go into liquidation. In fact, another loan shark company that went into administration, and acted in an identical manner to Wonga, was Cash Genie.

 

Cash Genie went into administration within the first half of 2016, having charged customers an annual rate of 2986%. On their website, they admit their unethical business practises, especially their practises towards vulnerable customers. Cash Genie used to charge customers £50 to transfer debts to a debt collection agency, and the loans that were taken out by the customer, were rolled over without permission if the balance was under a certain amount.

 

They also admitted to trading under two different names, and these two companies charged customers a small amount to broker a loan deal with Cash Genie. For vulnerable customers, this is money that they cannot afford to pay out when looking for a short-term loan. These fees can be from £50 up to £150 depending on the loan amount. 

 

They also admit not doing affordability checks on those not in employment, on benefits, not in secure jobs or on low minimum wage paid jobs. Even though Cash Genie went into liquidation in 2016, despite them offering compensation, they are still expecting people to pay their loan amounts back, even after balance adjustments. For vulnerable people, especially those with mental health issues, this is not acceptable.

 

Wonga, Cash Genie, Brighthouse and many others like them are known as ‘loan sharks’. This effectively means they can charge massive annual APR rates, and this can send vulnerable people into a spiral of continuing debt, as some people may intend to borrow more money to pay one loan off.

 

Wonga have instructed customers, despite their health state, even if they have a moratorium, to pay their loans back in full, and they have not made it clear if they will be doing anything similar to Cash Genie, such as balance adjustments due to their unusual business ethics.

 

 

Stella Creasy, the Labour and Co-Operative MP for Walthamstow, has been a tireless campaigner in parliament on this issue, campaigning against Wonga and their unethical ways of lending for many years. Stella has had personal dealings with Wonga, after it was revealed that some employees were behind some personal online vicious attacks against her, and they were made to sponsor a debt advice session. They then advertised the same session in her constituency.

 

The Money and Mental Health policy institute, which was founded by Martin Lewis of My Money Supermarket, and with Luciana Berger MP as one of their mental health advisors, have published several reports which links to this subject. The first one is about rent to own companies, and how they exploit people on low incomes who can’t afford luxury items that places such as Brighthouse sell.

 

A prime example of Brighthouse practises are that an item such as the new Iphone X, which retails at around £959 on the high street, would cost a final total, over 78 weeks, at an APR of 99.9% from Brighthouse of £1755. This is almost double what the high street charge for the same item, and that does not include added extras such as insurance and accessories.

 

An excellent point that this report makes is the one of impulsiveness. If credit is available to someone, it is easier to make the decision if the buy now pay later option is out there, and people rarely think about the astronomical APR rates. The other report to consider in relation to loan sharks is that of The Standards of Lending Practises for Personal Customers.

 

In the report, it states that 59% of people with mental health issues take out a loan when they do not have the physical capacity or the financial means to do so, and there is no protection, or question about vulnerability, from the lenders until it is sometimes too late.

 

2018 saw the welcome news that, thanks to the tireless campaigning of Martin Lewis, Luciana Berger, and their Money and Mental health colleagues, breathing space would be extended, ensuring that people with mental health issues understand the financial situation they are in, and creating an action plan that is more suited to their needs.

 

 This is an amendment to the Financial Guidance and Claims Bill which was tabled by MPs from all sides of the House. Furthermore, Stepchange has a team that helps vulnerable people and they will be adapting the new breathing space guidance when it becomes available from the government.

 

Wonga may have gone bust, and they are still forcing people to pay in full for their debts, but this is not the last we have seen from these ‘loan shark’ companies as they still linger about. This is only the first step of justice for those who have been affected by Wonga and their unethical business dealings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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