Massive Payout Exposes Ugly Underbelly of Payday Loans Collections

Debt campaigners outside St. Pauls in 2011 - Photo credit acute_tomato

Debt campaigners outside St. Pauls in 2011 – Photo credit acute_tomato

Payday loans provider Wonga was hit with a whopping £2.6m compensation payout yesterday, as the market leader’s carefully constructed squeaky-clean image was blown wide open as a fallacy.

Far from offering “completely transparent charges” as claimed on its website, the company shouldered the largest ever compensation payout from a UK payday lender because of its debt-collection policies, where letters were sent to borrowers threatening legal action from made-up law firms. In some cases Wonga also added extra charges to its customers for ‘administration fees’ of the non-existent law firms.

Wonga offered a begrudging apology to 45,000 affected customers for its “historical” actions and “system errors”, and claimed that it would be “contacting anyone affected proactively”. This stance was somewhat undermined, however, by the company consistently ignoring complaints and criticism from members of the press, as well as from Labour MP and anti-payday loans campaigner Stella Creasey on Twitter.

The payday loans sector has long come under criticism for its sky-high rates and ability to trap people into spirals of problem debt, but Wonga has tried to cultivate the image that it is the responsible and trustworthy exception that bucks the trend. By looking at Wonga’s collections policy, we can see this for the marketing ploy that it is – usurious rates still push people into poverty, particularly when coupled with bullying tactics and unorthodox collection practices that border on harassment.

Wonga is by no means the only problem-debt lender that pursues dodgy collection practices though. Indeed, an entire industry of doorstep and high-street lenders has cropped up since the recession, who provide credit to those who generally can’t get it elsewhere. With such a gap in provision for the financially excluded, lenders are able to take advantage by charging such high rates, and many will go to extreme lengths to collect these burdensome debts.

Take Brighthouse for example, the market leader in selling household essentials on high-interest credit. This “rent-to-buy” model can be appealing because it offers people the chance to purchase items without the upfront cost, paying instead on weekly repayment plans. By combining high interest rates with inflated prices, however, customers often end up paying 2 or even 3 times the value of the products – another egregious example of the poverty premium in action.

To keep clawing in these repayments, Brighthouse has developed an unorthodox method of collection that relies on the peer pressure of social networks. At the point of lending the store takes the phone numbers of 5 friends of the borrower – and then repeatedly phones all of them if the person runs into any difficulty in paying them back.

This type of aggressive collection is extremely pernicious and damaging, because it causes unnecessary emotional and psychological harm not only to the borrower, but also to people who had nothing to do with the original purchase in the first place. In turn, this places increasing strain on the social and familial relationships that often go so far in supporting and sustaining those from lower income households, helping to accelerate social breakdown and spirals of poverty.

If Wonga’s payout showed that even the self-styled darling of the industry is still an ugly and manipulative lender, then it follows that a whole host of dubious practices continue to thrive within the sector. With companies such as Brighthouse continuing to develop imaginative and distressing collections policies, it’s more imperative than ever to remain vigilant to such exploitative practices – as well as to develop ethical and sustainable alternatives to such problem-debt provision.


Wireframes and Social Gains – More User Testing

Behavioural Choices - Image from

Behavioural Choices – Image from

It seems a long time ago now since our sessions at The Mill. Yet as the frantic final weeks of the accelerator gathered pace, getting back in front of our users remained paramount in our thinking.

Since those heady days on Coppermill Lane a lot has developed within the Money Saving Movement. Since bulk-buy proved less popular than we’d thought, we’ve delved deep into behavioural psychology, toyed with gamification, and pried around pre-pay cards.

Dealing with such a broad and diverse problem has made it difficult to find a catch-all solution that would work for everyone. We’ve produced a wide array of ideas on what our intervention might look like, each with different strengths and weaknesses in terms of fit, scalability and potential impact.

ideas board

Ideas mooted, mapped and mulled over

Throughout the public service launchpad we’ve built a really strong body of research, and have developed some original insights that are catching the imagination of others in the sector. This has also led us to more intervention ideas, and new avenues to explore.

Whist conducting this research it became clearer and clearer that a successful intervention would meet the needs of the user in the immediate term, as well as in the long term. Incentives, progress tracking and a tangible goal to focus on seemed imperative elements for successful engagement, and our findings were only buttressed further with the release of the Money Advice Service’s excellent recent report.

As a result, it became obvious that Matt Skinner’s mantra was true now more than ever – it was time to return to our users. To test our theory on interventions we designed a prototype switching site app that would save users money on their utility bills. This tested the efficacy of the ingredients we had identified by including incentives, progress tracking and goal setting to encourage long-term financial decision making.


The dashboard of what a progress tracking switching app could look like

We set up a stall in the brilliant Waltham Forest Community Credit Union, offering tea, coffee and Easter eggs as incentives to test out our app. Attracting a wide variety of members, staff and volunteers from the credit union, we gained some really useful feedback right from the off.

The idea of earning cashback on utilities switches was extremely popular, with almost every user picking up on it and asking questions. Staff member Victoria was literally bouncing with excitement when she saw the cashback she’d earned grow – “The more you see your cashback go up, the more you’re gonna switch on the other bills. I just wanna see that figure go up!” she said. “I wouldn’t want loopholes or limitations on the cashback,” said a young woman named Fatima. “People want the freedom to spend their money how they want.”

Owen fiercely focused on the opinions of our app

Owen fiercely focused on the opinions of our app

As expected, visuals and progress tracking also went down well. “You can see a reward. I like that, I want to feel like I’m working towards something,” said young mum Ria. “That’s really important to focus on the long term goal if you want to break down financial habits”.

Amongst all the good feedback, some notes of caution also emerged. Despite praising the app, many people admitted they never consulted switching sites, often staying with energy providers for years and years despite being very critical of them. If people don’t switch already, why would another switching site encourage them to do so? It’s all very good having powerful nudges to action, but these would only be useful if someone actually sees them and interacts with them in the first place.

Fionn explaining the app test

Fionn chats with a Credit Union member as they explore the app prototype

“If I want something I can go out and find it myself,” said Terry, who hadn’t switched his energy provider for 12 years. “It’s better the devil you know”. “I find it too tedious for small savings,” said Angie, a volunteer in her 40s.  “I get frustrated”.

With a cascade of quotes and a barrage of scribbled notes we retreated from Walthamstow’s high street. Our latest bout of user testing had told us that visuals, incentives and gentle social pressure are all really useful, and should be included in financial interventions. But it also told us that its not enough to just throw a party and expect people to come – more often than not, you have to go to where the people are already.


Meet the Team – James

James Perkins

Money Saving Movement started with the idea that more could be done to help people with the cost of living. I worked in a Housing Association at the time, which strangely was the same one who managed my parents’ house – the same one that I grew up in. I guess because we didn’t have a lot of money when we grew up I was always interested in getting more for less. This after a career working with big retailers in product marketing and buying gave me more than a bit of a healthy interest in buying at the right price.

Like many, my parents kind of struggled by. They weren’t in any way on the “bread line” but certainly life was always a bit hard when it came to the cost of living. I would always try to advise my parents about ways to save money, and often thought that many people would benefit from information that would guide them to find ways to make life a little easier.

I knew that more and more people were struggling financially. I mean you really couldn’t escape from the stories that were repeated day after day about the financial crises and the credit crunch. There had to be a way of getting more money saving information to people. So I was really pleased when I saw an advert asking for people who had ideas about way public services could be improved. At the time I thought my Housing Association could do more, and wanted to talk to people about how that idea could be developed.

That is where we started this little adventure. My ambition is to develop a social enterprise that helps people with the cost of living and more importantly helps them to live more enjoyable lives. After all, money worries are something that none of us need – so let’s create something to get rid of them.

Does Bulk-Buy Fly? User Testing at The Mill

MSM Outside The Mill

There’s only so much reading and report writing you can do before knowing whether what you’re up to is right – eventually, it’s about time you road-tested.

After a whirlwind start, the Hub Launchpad jolted into its 7th week – the halfway point, and a time to take stock. We’d made some significant progress in honing our market, defining our problem, and producing a solid body of research – but often we’d made the most progress when speaking directly with our users.

Having steeled ourselves on the streets of Hackney, a new opportunity emerged to reconnect with our users. The Mill, a volunteer run community centre in the heart of Walthamstow, offered us three days to speak with people about the cost of living and how we might reduce it. As ever, the results weren’t exactly what we were expecting.

With food prices ever rising and energy companies arousing ire, our team had thought that bulk-buying products and services would be a great way of bringing peoples’ bills down.

We’d spoken to several groups who ran bulk-buy deals, which had helped us to identify several problem areas, such as how might the produce be distributed, and how much choice people would have over the goods they received.

Yet up in Walthamstow, peoples’ concerns were different. Even when recognising that saving money through bulk-buy schemes was a ‘good idea’, it was always an idea for someone else. “I feel this bulk-buy idea is second best to having flourishing local shops,” One woman remarked. “Even if it cost me more, I’d still want to support my local shops.”

Fionn Talking with Walthamstow Residents

The sentiment was echoed throughout our stay. “I’d rather there was an attempt to build neighbourliness in a small area,” said one man, who didn’t trust his energy supplier and yet hadn’t switched in 15 years. “The more connected to things and the better you know people, the better you feel so the less you need to spend.”

Guests of The Mill seemed to pine for community, and also expressed real enjoyment from sharing their money saving experiences – yet admitted to never having done so before we, as a group of strangers, had started the conversation.

Other recognised themes came to the fore too. When in financial trouble, people tended to rely on their social and familial connections, turning to public services often as a last resort. “I racked up £25,000 worth of debt with payday loans,” one woman told us. “Eventually I went to my father.”

Significantly, most people mentioned transition periods as being those that put the biggest pressure on their budgets. Moving from benefits to work or from two wage earners to one was a frequent concern, and something that has come up time and again in our research.

“I’ve learned my lesson with payday loans,” the woman continued, “but I’m just about to start a new job, and am quite worried about the changes that will bring to my money”

Mosaic Group at The Mill

If visiting The Mill served to dash our appetite for bulk buying, it also offered an array of fruitful alternatives. A “We Love Low Cost Living” event brought contacts with the local credit union and housing association, both willing to set up focus groups and eager to collaborate with future service designs.

After a long weekend The Mill had given us a lot – not just bellies full of free leek soup and foraged natural teas, but also greater insights into what people do and don’t want from the things that will save them money. That alone is useful food for thought.

Meet the Team – Tamer

Azer_T_Profile book_compressed

As an On Purpose Associate, it is my personal mission for this year, to engage with as many social enterprises as possible in order to add more value to my time with On Purpose.

Money Saving Movement (MSM) gives me a chance to do just that; it also gives me a chance to contribute to the sector and to work on a meaningful project that aims to support people in making their money go further – an increasingly more important need given the impact of the economic recession and the rising cost of living. Working with MSM can help me make a meaningful contribution to those around me and to gain invaluable experience working with talented social entrepreneurs on the frontline of innovation in community-based service delivery.

Drawing the Lines of Battle – End-User Interviews on the Streets of Hackney

Fionn outside the Hackney CAB

Fionn outside the Hackney CAB

A rainy morning on Hackney’s high street is probably no-ones idea of a great time, but after continued propaganda from the Hub Launchpad team on the benefits of “getting out the building,” we took our testing to the frontline of financial exclusion.

Yet sticking your head above the parapet can sometimes be harder than it seems. Speaking directly with customers inside the Citizens Advice Bureau apparently violated their confidentiality, so we were hurried on, forced to retreat to the sodden steps outside.

Bemused but undeterred, we soldiered on in our attempts to interview potential users. Surprisingly, it was great to find that despite discussing the difficult subject matters of debt, rent arrears and budgetary advice, the people of Hackney were generally happy to talk. From a landlady carrying out an eviction to a man on the edge of homelessness, people were surprisingly open with their stories, giving great insights to cross-check against earlier research.

Our truce with the CAB proved short-lived, however, when an irate employee launched a tirade of anger over our encampment. Unable to explain how personal stories freely given in a public space violated “confidentiality requirements,” we soon found ourselves deep inside the bowels of the Bureau, explaining ourselves and our purpose to a much more receptive supervisor.

After some time we managed to alleviate their concerns, but not their desire for us to leave, as evidenced by the suggestion that we conduct our survey elsewhere. Regrouping over rations of Turkish pizza for lunch, we had a look at what we had learned from the whole experience.

In fact, much of what people had told us confirmed the findings from our previous research. Three problem areas really stood out: firstly, that people often struggled in the transition between one payment schedule and another, for example when moving from weekly benefits payments to a month’s wages in arrears from work, and vice versa. Secondly, unexpected “flashpoint” expenses like a car breakdown could push even the most balanced of budgets over the edge. And thirdly, the simple fact that the toxic combination of increasing costs of living, stagnant wages, and continuing welfare reform is imposing a long-term decline in people’s expendable income.

These three reasons came up time and again in our desk-based research, but hearing people’s stories really brought home what it feels like to actually experience those problems.  It follows, then, that the solution we create must be flexible enough to respond to each of these three scenarios.

Valuable lessons learned, then, in how to communicate and deliver our mission – as well as the realisation that to wage a war against a social problem, we’re going to have to expect a few battles.

Meet the Team – Andy

Andy Headshot

I heard about Money Saving Movement through a friend while working on another social enterprise project, Move Your Money. As a person that benefits from money saving ideas on most purchases, I was attracted to the idea of a Money Saving Movement providing money saving tools for those that need it most.

I was shocked to learn that 22% of the U.K. population are living on or below the poverty line, even though many of them are in employment. In recent years it has become more expensive to be poor with the rapid rise in the cost of living and austerity measures undertaken within welfare reform.

The costs and effects of living on a low income are being further compounded by added costs to families and individuals through being financially excluded and lacking access to money saving ideas in an already difficult situation.

I joined the Money Saving Movement team in the hope of enabling those in need to get the most value out of every pound they spend, and to be part of something that will help level the playing field and restore some justice in the purchasing power of those on low incomes.