Wonga may be facing collapse—but the conditions it profited from remain

When Wonga was established, the advertising for the company pitched the payday loan company as something new and original in finance. Cutesy graphics framed sliding buttons laying out the interest and repayment period of each loan, and the ads for the business followed you around the internet and nestled in the ad breaks on whichever channel you watched.

In reality, they were identical to all the other high-interest lenders across the market: the obscene interest and deliberate targeting of people in poverty and crisis meant that while some people paid the loans back without issue, many were forced to ‘roll over’ payments, or take out other loans to pay off the original sum, spiralling into debt rapidly.

Now, Wonga is rumoured to be facing collapse: the company have stopped offering new loans to customers, and a surge in compensation claims has led the firm to issue a statement that refused to rule out going into administration.

There will be few tears shed by anyone sensible. The company were forced to write off £220m in loans in October 2014 due to failing to properly apply affordability checks as a lender, and paid £2.6m in compensation after admitting to sending letters from fake legal firms to customers to attempt to scare them into paying their arrears.

The firm is unmistakably predatory, and it comes as no surprise that the boom in payday lenders occurred after the financial crash and just when austerity was beginning to bite in household budgets.

The rise of payday loans also accompanied the ransacking of our social security system, with sanctions, reassessment for claimants with disability, and more recently the farce of Universal Credit delaying payments to people for weeks and months, alongside myriad deep cuts to benefits for individuals and households.

Concurrently, the rise of precarious working and zero hours contracts made ever more people reliant on the whims of employers, and rarely able to predict whether their earnings would cover their outgoings.

These companies saw a window of opportunity and descended on the poor and precarious like financial vampires. The evidence shows that the entire business model is designed to wring cash from those struggling to repay loans.

But while Wonga’s demise may be good news in terms of preventing future financial ruin for people, the conditions and structures that Wonga profited from remain.

In 2014, the firm had a million customers—just under one in fifty adults in the UK had taken a loan from Wonga: the fact that so many people had other lines of credit closed off to them, and were in a situation whereby they had no savings for essentials and bills is an indictment of the functioning of our economy.

Wonga may have found their efforts to prey on the most financially vulnerable hampered, but plenty of other payday lenders remain in business. Even in researching this article, I found a Google results page deluged with a dozen different companies all offering instant cash.

The efforts to clamp down on the predatory capitalism at the heart of payday lending is commendable, but cannot operate in a vacuum: preventing payday lenders from giving money to people unlikely to afford the repayments is only a kindness if you provide an alternative method to make ends meet.

Credit card debt in the UK is now reaching the same problem levels payday loans had previously: 30 per cent of adults say they struggle to make it to payday due to credit card repayments.

Local credit unions have been battling to combat local lenders with almost no resources or support, as well as delivering financial education. A boost for these organisations could make a massive difference.

The alternative is much darker: doorstep lenders who rely on physical intimidation, threats, and violence, unregulated and often acting illegally, relying on fear to silence those they target.

The long-term cost of high credit and problem debt is physical ill health due to stress and destitution, and massively impacted mental health.

British people desperately need a payrise—given the majority of people in poverty are in work—but in the meantime they need ethical, non-predatory financial support.

The state should provide a safety net for the most vulnerable when they need it, yet five years ago the government closed the Social Fund, which provided emergency payments to people in crisis.

Last year, it was revealed the local welfare assistance programme that replaced it had closed in two-thirds of local authorities, leaving people adrift and alone financially.

Reinstating the safety net the government removed, and heavily investing in local credit unions is the only way to ensure that when people find their circumstances stacked against them, there is a way out.

The alternative is doorstep lenders rubbing their hands with glee, and ever more people being struck with fear each time the doorbell chimes

An earlier version of this article incorrectly stated that one in five UK adults had accessed Wonga's services. The actual figure is one in 50.