Interesting Links for 27-07-2013

[andrewducker]

• The same actress playing different teenage girls for over twenty years.
  (tags: tv age )
• Gorgeous art of the same house in many different kinds of weather
  (tags: art weather )
• What it's like to work with a bear who's a _teensy_ bit of a diva.
  (tags: animals tv gameofthrones )
• The Archbishop of Canterbury is innumerate
  (tags: religion money credit )

Comments

[drdoug]

Far be it for me to defend a cleric's pontificating, but I think the Archbishop of Canterbury would respond to the point that Wonga needs to charge an eye-wateringly high APR in order to cover the eye-wateringly high cost of defaulting loans with the argument that a key point of his whole idea here is for there to be a much lower rate of default. Loan defaults tend to have socially very bad outcomes. Reducing the rate of default on loans seems like a very good plan.

In theory it's do-able - I've not looked up the figures recently but historically credit unions do reasonably well for defaults (better than I think they 'ought' to), and certainly better than payday lenders.

I confidently predict, though, that nonetheless the Archbishop of Canterbury and credit unions are not going to put payday lenders out of business through competition. Part of the point of credit unions (and reducing the rate of default on loans) is that they know you better than a payday lender, which takes time - and the big selling point for payday lenders is that you get the cash right now.

(Also, I can't easily duplicate drplotka's sums there but happy to take it on spec. My guess is he's underestimating the cost of defaults - I expect Wonga is making money, but not at the spectacular rate that one might guess from their APRs. I'd be surprised if they are making very much more per pound loaned than a traditional bank.)

[drdoug]

And another thing: I'm slightly surprised at the focus of payday lending hatred on Wonga. They seem to me if anything one of the more trustworthy and ethical payday lenders - in part because they have such a high profile. Admittedly that's a 'one of the better of a very bad bunch' thing.

It's also a very complex issue to resolve - the simple regulatory solution (legal maximum APRs) will mean high-risk customers simply can't get loans, and also raises the scary prospect of illegal loan sharks (who will have added incentive to terrify their customers). Which might on average seem better than the current regime, but I think much better to put our efforts in to reducing people's risk of defaulting. Which includes boosting credit unions.

[naath]

Or we could put our efforts into reducing people's need to borrow money they can't afford to repay in order to have the basic necessities of life.

[andrewducker]

I believe that Wonga's default rate is considered very low, for the kind of market that they service. There's a good article here about their model:
http://www.bbc.co.uk/news/business-23078746

And yes - I think that it costs them about £10 to set up each loan in overheads, and they need to make that back too.

[del_c]

Yes, default rates aren't a thing that falls out of the sky on a lender, it's something they go looking for as an attractive market.

This strikes me as yet another in the centuries-old series of arguments that taking money from poor people is counterintuitively an act of stunning altruism on the part of the taker. (see also employers who pay their employees very little, then boast that they give the very poorest people jobs! Saints, the lot of them)