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Kyle Mitchell
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The scary truth about payday loan companies

08 May 2014, 08:38

I know the trend lately has been revolving around elections and fairy tales, but I am going to diverge. Some of these people will think the Dawkins spaghetti monster is real (sarcastic), and there is nothing we can do about it. Anyway... 

As I mentioned in my article the other day, I recently started work for a company in the UK that handles PPI Claims

While I am busy learning the ins and outs of the packages that the business offers, I have learned some scary truths about Wonga and other payday loan companies (Wonga was started by a South African in the UK). I would just like to run through the kind of debt that many people are exposing themself to while these companies run around (un)regulated. For an example, if we start with a relatively low amount, let’s say R200, the loan can soon start to look like this:

R200 from a payday lender (which is seldom the case, as people will no doubt be irresponsible with this. If you were flat broke, be honest, what would you take?).

This needs to be repaid in 30 days together with the R90 interest (which is equivalent to 1.5% interest each day!).

So now R290 needs to be paid back. Pretty simple concept. The problem is however, if for whatever reason the loan is forfeited, they let you roll up the amount. So now you have effectively taken out a loan at R290, with the total now to be paid back in the region of R420. In the space of 60 days (the amount to be paid back is more than double what it initially was).

If you have a look at the type of target market that Wonga is targeting in South Africa, you could comfortably say that it is the low income bracket (A lot of the ads are also on free channels like SABC). Now let’s say you are a domestic worker (Which is a large number of people in South Africa), you are probably earning around R2500 per month. If you take out a loan of R1000 for whatever reason, you could well be paying around R1800 in one lump sum in this scenario (This is effectively extortion and loan sharking). Combined with this, if you are in a position that this happens, you are more than likely poorly educated, and don’t know the eventual ramifications and how this could cripple you financially (You were presented with a grandpa telling you how to get R2000). This then forces you to take another loan to cover this, which repeats the initial problem.

The UK government is putting a lot of pressure on these companies, with numerous towns making the stores illegal and blocking the IP Addresses in public areas. New legislation is in place that allows people to claim this back, paying back just the loan and initial interest. While we have a bunch of morons in charge who are probably getting their palms greased for agreeing to the exploitation of their citizens, surely there needs to be a way around stopping this from happening to South Africans? I don’t mean to harp on about these things, it is just so scary that institutions are getting away with things in SA that is considered serious misconduct and even fraud on this side of the world. I am in no way clued about the law, but is there a Financial Ombudsman that we can write to in order to have this properly regulated? In this of all weeks, surely we can’t sit back and watch fellow South Africans get ruined for something they don’t quite understand?

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