Payday Lending Series

Case Studies of Payday Lending

Fintech Payday Lending: The Case of Wonga

Early accounts of UK online payday lender Wonga sounded like the first chapters of a revolutionary fintech success story. Twelve years later, Wonga has collapsed into administration, overseen by Grant Thornton UK LLP. As of its collapse in August 2018, Wonga owed unsecured creditors a total of £83.3 million (US$104 million), including £45 million (US$56 million) in payouts. This insolvency is the culmination of thousands of registered complaints, intermittent scandals, FCA financials controls, and more. The ethics behind payday lending, as well as Wonga’s behavior in particular, is worth examination. In this case, elements of usurious profiteering, information asymmetries, aggression and exploitation, and negative externalities offend both distributive and commutative justice. These violations are also largely inconsistent with Wonga’s supposedly crucial and benevolent role in consumer credit economy, as used in its defense narrative. Payday loans refer to short-term, high-cost, unsecured loans of a relatively small sum. READ MORE…

Payday Lending: An Ethics Evaluation

Payday lending is a much-maligned industry, for goodreason. The problems with payday lending run deeper than the actions of any individual lender. The insidious truth about payday lending is the business model is inherently unethical. Lenders must keep borrowers in debt to stay in business. If borrowers repay their loans quickly, lenders cannot profit. This paper shows that the current structure of payday lending sets borrowers up to lose. John Rawls’ concept of justice as fairness is the framework for this analysis. Payday lending fails to uphold the standard of justice as fairness because the practice disrespects the fundamental requirements of fair cooperation. READ MORE…