c.2013 New York Times News Service

c.2013 New York Times News Service

LONDON — The promotional film depicted the humble, happy lives of a dozen customers of Wonga, Britain’s biggest payday lender.

Bathed in golden light, backed by dreamy music, the men and women described their prized possessions. Money? Barely mentioned.

But the short film, commissioned by Wonga and released online this month, backfired — by drawing further attention to the company, Britain’s biggest provider of payday loans, which critics have assailed as predatory at a time of economic hardship.

Stella Creasy, the Labour Party spokeswoman for business issues, posted on her Twitter account: “you can find 12 happy customers, I can provide you with 1200 caught in toxic payday loan trap.”

Responding to the controversy, the Conservative government — whose regulation of such lenders has been light compared with what happens in the United States, France, Germany and other European countries — said Monday that it would propose a law to cap borrowers’ costs for payday loans.

Wonga, which offers small loans online at high interest rates, has found a market among Britons who need quick cash for short periods, something British banks rarely provide.

Of the few hundred payday lenders in Britain, Wonga is the leader by far. It made 1.16 billion pounds ($1.9 billion) in loans last year, about half of the country’s payday loan market. The company had a net profit last year of 62.5 million pounds on revenue of 309 million pounds.

Critics say payday lenders exploit the poor. Wonga typically charges a daily rate of 1 percent on a loan of up to 1,000 pounds. A 150-pound loan over 18 days, for example, would cost 33.49 pounds, including fees. Over one year, if someone could not repay, that would be equivalent to an interest rate of 5,853 percent when the charges were compounded.

The archbishop of Canterbury, Justin Welby, a former businessman, is among Wonga’s most vocal critics.

“An interest rate of over 4,000 percent has been considered usurious since the time of Moses,” Welby said, as quoted by the Guardian newspaper. “It’s no different now.”

Wonga executives declined to comment for this article. But Errol Damelin, who co-founded the privately held company seven years ago and gave up his role as chief executive to become chairman two weeks ago, has described Wonga as “a powerful force for good in the financial world.”

Writing in The Telegraph, he added, “We are challenging the tired and incompetent banking industry by offering new products and services that are relevant to a digital age.”

Wonga has drawn fire because it is the industry leader, said Martin Lewis, the creator of personal finance website MoneySavingExpert.com.

“It’s a marketing-created demand for instantaneous cash,” he said. “It’s done in one click.”

While most lenders rely on conventional methods like credit scores from third parties to assess borrowers, Wonga says it uses an algorithm that pulls together 8,000 pieces of data about borrowers from the Internet, including Facebook profiles. Its lending decisions are made instantly, and loans can be transmitted to a borrower’s bank account in five minutes — a process Damelin says is like “buying a song off iTunes.”

Wonga argues that it competes favorably with bank overdraft fees. And some proponents say the clarity of the company’s website is a major improvement over the way British banks deal with clients who overdraw their accounts and are punished by high interest rates and penalties that are buried in fine print.

Wonga released the promotional film, called “12 Portraits,” this month. The ad, by British director Gary Tarn, features a series of ostensibly happy clients.

One of them, Angela Asquith, describes borrowing 200 pounds and repaying 235 pounds, including interest and fees, 14 days later. Another, Dennis Carmichael, a professional karaoke singer, borrowed 101 pounds to finance his travel costs between gigs. Four days later he repaid 111 pounds. In the film, at least, these and the other Wonga customers had no complaints.

But the film seemed only to lengthen Wonga’s already long lightning rod.

The Guardian described the film as a “political broadcast for the payday party.”


Ed Miliband, the leader of the opposition Labour Party, criticized the Wonga economy, in which, he said, thousands of British families were mired in unpayable debt.

Among technology buffs, Wonga has often been praised for its digital expertise. The company was established by Damelin and a fellow South African, Jonty Hurwitz, an artist and entrepreneur.

Hurwitz designed the technology, particularly the “sliders” on the website that show how much it costs to borrow cash over different periods. The numbers change for different borrowers, based on what the algorithm can glean from their digital footprints — their choice of web browser, I.P. addresses, Facebook profiles, whether they arrived at the website directly or through an ad.

Wonga employs more than 650 people, including 150 data engineers. And while the bulk of its lending is in Britain, the company also operates in Canada, Poland, South Africa and Spain. Although those countries do place caps on interest rates, Wonga has found ways to increase other fees to ensure a profit.

Much of Wonga’s success has been built on the dearth of regulation in Britain, which has helped entice some U.S. firms to set up offices, including MEM Consumer Finance (PaydayUK), the Dollar Financial Group (the Money Shop) and Cash America (QuickQuid).

“Britain has been the crock of gold at the end of the payday rainbow for companies,” said Lewis, the personal finance expert. “They aren’t doing anything against our law. The problem, however, is our law.”


Loan sharking is illegal in Britain, but there is no ceiling on high-cost borrowing — as there is, for example, in Germany and France, which have credit caps of around 16 percent and 20 percent. In the United States, regulations differ by state. But 15 states have banned payday lending, while others have imposed laws to limit the interest rates and the number of loans that can be made to each customer.

Now, the British government is proposing caps on payday loans and fees. And next spring, officials at the Financial Conduct Authority plan to impose new rules, including requiring clearer warnings on advertising and limiting the number of times a loan can be extended.

Damelin has said that he, too, wants better regulation.

“The bad guys make it difficult for everybody innovating in financial services,” he told The Telegraph. “Wonga happens to be a poster child, as we’ve built a brand that is well recognized today and we’ve built scale.”