Wonga loans written off on credit

 

wonga loans written off on credit

This is part of a Globe series that explores our growing dependence on credit – from the average household to massive institutions – and the looming risks for a nation addicted to cheap money. Join the conversation on Twitter with the hashtag #DebtBinge

Robbie McCall wanted to give his daughter a new pair for Christmas. But he was short of cash. Mr. McCall, 47, lives on a fixed disability payment of $1,350 a month and he just didn’t have the money to buy them.

So he went into a nearby cash store in Ottawa to get a quick loan. This is how his debt trap began: When he returned in January to pay back the first $200 loan, plus $20 in fees (a promotional rate as a first-time borrower), he was encouraged to take out another, bigger loan – $300. But the second time, his bill, which included other fees, came to $86.

Wonga loans written off on credit

A BIG BANK hires a star analyst from another firm, promising to pay a substantial bonus if the new hire increases revenue or cuts costs. In banking this happens all the time, but this deal differs from the rest in one small detail: the new hire, Watson, is an IBM computer.

Citigroup has hired Watson to help it decide what new products and services (such as loans or credit cards) to offer its customers. The bank doesn't say so, but Watson's first job may well be to try to cut down on fraud and look for signs of customers becoming less creditworthy. If so, Watson will be following other computers designed to deal with “big data”. Across a slew of new firms in Silicon Valley and in big banks across the world, a range of new ideas is being tried to crunch data. Some have the potential to change banking from the bottom up.

When moving on to more complex tasks, such as identifying the tiny percentage of fraudulent transactions among the millions of legitimate ones, the demands become ever greater. The problem is getting bigger because as banking has moved onto computers and mobile phones, and payments have shifted from cash to cards or electronic transfers, the opportunities for fraud have proliferated.

This is part of a Globe series that explores our growing dependence on credit – from the average household to massive institutions – and the looming risks for a nation addicted to cheap money. Join the conversation on Twitter with the hashtag #DebtBinge

Robbie McCall wanted to give his daughter a new pair for Christmas. But he was short of cash. Mr. McCall, 47, lives on a fixed disability payment of $1,350 a month and he just didn’t have the money to buy them.

So he went into a nearby cash store in Ottawa to get a quick loan. This is how his debt trap began: When he returned in January to pay back the first $200 loan, plus $20 in fees (a promotional rate as a first-time borrower), he was encouraged to take out another, bigger loan – $300. But the second time, his bill, which included other fees, came to $86.

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Wonga.com is not only the most high profile and controversial payday lender in the UK, it is also the most technologically advanced. By automatically sorting through 8,000 different data points , it claims to be particularly good at sorting borrowers who will repay from those who will not, based on its distinctive method of credit assessment. But, apart from Wonga insiders, no-one quite knows how this is done. I’m going to look at what you can find out from what is publically available – once you know how to look – and what the implications of these kinds of practices might be, as they spread.

The individual controversies that have accompanied Wonga will be familiar to many. At the root of Wonga’s PR problems seem to be its particular combination of friendly, welcoming brand imagery – its latest adverts feature pensioner puppets ‘Betty, Joyce and Earl’ getting up to various mischief – with lending rates that currently stand at 4214% APR, a level branded ‘usurious’ by the then Bishop, now Archbishop of Canterbury. The rate is significantly higher than many other online payday lenders.

Wonga’s response to criticism has been to point to the unusually fast service it offers borrowers, to its transparency – the APR is, after all, displayed prominently on its homepage – and, echoing arguments made by an industry body, it asserts that APR, an annual, compound measure of interest, isn’t an appropriate measure for the short term world of payday lending.