Let’s take a chap, me, who’s overspent in a month (on mandatory, regulator-imposed exam-fees, as it happens but also on a holiday for the bird, a bike for me and a really rather extravagent piss-up in which I lost all sense of proportion, and mistakenly let my ‘friends’ loose on a tab). The Fee from the bank to go over an overdraft limit: £25 plus additional fees of £5 PER DAY over 9 days, this would be nearly £70. by comparison, the cost of a £200 loan from Wonga.com for 9 days £23.74.
Stella Creasy can work out that the £23.74 fees & interest on a £200 loan is an APR of 481%. This she thinks is terribe. By comparison, if the payday lender were not there, the APR to the chap who’s overspent is 1,419%, which he would have no choice or ability to avoid. Yet again, the tighter regulation suggested by fucking morons drive people into the tender embrace of the banks who make an absolute killing. One may be paying an APR of 481%, but I’m saving £46.26. Of course the solution is to not go over your limits, but when you do, would you rather pay £23.74 or £70?
Regulation favours the banks, over insurgent competition. Again.
Update. I had a conversation on Twitter about this with the MP in question, who came accross as ill-informed and rather smug. OF COURSE, FINANCING YOUR LIFE USING WONGA IS STUPID. The assumption that this service is bad, and exploitative is made a-priori, without considering the costs of offering a £200 loan for 2 weeks for less than £30 to people who are, by definition struggling for money. Meanwhile Twitterer, @rfrst was trying in vain to make the point that 1% a day plus a fiver is a HUGE APR, which in no-way reflects the cost of borrowing. Wonga for exampe, don’t compound the interest, so APR is an absurd measure. I pointed out that other short-term lenders do not enjoy a big return on equity, so they’re not making abnormal profits. It’s true, a lot of money is spent on advertising. But that’s inevitable in a new sector with low barriers to entry.
All I got from the MP from Walthamstow was ad-hominem and a-priori statements not backed up by argument, logic, reason, or economic rationale. Worse, she refused to admit that limiting the cost of credit would affect supply. Finally, she seems to think credit unions are a solution. They are, to those on the carousel of debt, or who are looking to finance purchases more effectively than store credit. They are not a replacement for Payday loans, because the money isn’t instant, and so cannot be used to avoid bank debt.
Rather than going after the reputable, and reasonably well-known Wonga, it would be better to go after the less reputable lenders who do overcharge, make multiple claims against an account in a day. Better still, go after the banks, with whom APRs of over 1,000,000% are possible.