New Year, New Wonga

The London Underground stops at around 1 in the morning for about four hours every night, to allow essential maintenance to be carried out to the network. The exception to this is New Year's Eve since 2003, when trains run throughout the night for free, to enable inebriated Londoners to travel home on a creaking, mostly-out-of-date transport system at a time of their choosing.

This year, in a spirit of free enterprise, Boris Johnson has announced that the free New Year's Eve travel will be sponsored by Wonga.com, a company specialising in short term loans at extortionate rates of APR, typically 2689%.

Fortunately, as they explain on their website, although they're legally obliged to print this in large letters on their adverts, it's nothing to worry about:

The larger the APR the more expensive a loan, right? Wrong. It’s a common perception, but with Wonga’s super-flexible approach to short term credit the opposite applies. This is a good indication of the potential for APR to mislead when trying to judge the cost of a short term loan.

The cost of a Wonga cash advance is determined by the amount of money borrowed and the number of days you need it for - the shorter the term, the less you’ll pay in interest and fees. Yet APR actually increases as the term and cost of a Wonga loan decreases. Confused? Well, as the loan period gets shorter, the more times you have to multiply and compound interest to make it into a theoretical annual figure!

Ah, so it's actually cheaper. How stupid of me.

There's a lot of instances on their website where Wonga soothes potential customers after asking them if they feel confused by all this financial speak.

With such short term credit APR has the potential to confuse, because it creates incomprehensible numbers compared to the norm. That’s why we also show the total amount repayable (TAR) before you apply. 

And not because you're obliged to by government legislation?

It's easy to imagine that the kind of people who'd use a short term loan service might not be particularly au fait with the ins and outs of financial terminology. It's also easy to imagine that such people would be easily convinced by a flash website which spends a lot of time authoritatively calming their fears about a subject they might be understandably concerned about.

Wonga state on their site:

We have a consumer credit licence from the Office of Fair Trading and are members of the Finance and Leasing Association.

A consumer credit licence isn't that hard to come by. But what's the Finance and Leasing Association? Sounds impressive.

The Finance & Leasing Association (FLA) is the UK’s leading trade association for the consumer credit, motor finance and asset finance sectors, and the largest organisation of its type in Europe.

Our members are banks, subsidiaries of banks and building societies, the finance arms of leading retailers and manufacturing companies and a range of independent firms.

It's a lobbying organisation for the financial industry.

Our mission is to represent our members’ interests to government, regulators, the European institutions, the media and the general public so as to improve the working environment in which our members do business.

What they do is to push the interests of what is an already vastly powerful section of industry, the financial sector, and do their best to reduce the costs on this sector. This is nothing to do with the Financial Services Authority, which has a slightly different purpose.

The Financial Services and Markets Act 2000 (FSMA) gives us four statutory objectives:

• market confidence - maintaining confidence in the financial system;
• financial stability - contributing to the protection and enhancement of the UK financial system
• consumer protection - securing the appropriate degree of protection for consumers; and
• the reduction of financial crime - reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.

It's not surprising, then, that the Conservatives want to get rid of it.

See what Wonga did there? They stated their membership of an association called the FLA, which sounds similar to the FSA, but has entirely different objectives. It would be very cynical to conclude that Wonga touted their membership of the FLA in the knowledge that most people visiting their site will be impressed by the big words and financey language.

Ultimately, while companies like this manage to avoid the tag "loan shark", mostly because their operations are legit, they share a target group in the part of society that is underpaid, undereducated, and unable to do anything about it, while all the time being bombarded with the messages from the consumer culture we all live in.

These companies have no interest in changing the structure of society. Why would they? It suits them for their customers to remain in poverty, with just enough income to justify the short term loans that companies like Wonga use to prey on them, but not enough to escape the grim cycle of loan-repayment-loan that keeps the loan companies in business.

It does London Underground and Boris Johnson no favours to be associated with these despicable people.