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Money machine: Errol Damelin, Wonga

But how does Damelin respond to criticism from the likes of Peter Tutton, consumer policy officer at Citizens Advice, who says: ?People using these types of loan can’t afford them in the first place, can’t pay them back and end up by taking multiple loans

“If you drive past a strip mall in the US, you?ll see payday loan shops boasting ?no credit checks!” in flashy lights. We re the opposite,” responds Damelin. We carry out full credit checks and our technology weeds out any clients with unsustainable borrowing patterns. We only accept 15 per cent of first-time applicants. And our decisions are fair because they?re based on objective data.

Damelin says the service isn’t aimed at people swamped in a tidal wave of debt. The average loan on Wonga is £220. Every customer has a bank account and is employed: ?Our customers are aged between 20 and 40 and technically savvy the kind of people who buy holidays online.

There are no penalties for early repayment and no admin charges. There aren?t any hidden costs,” continues Damelin. We re not like an airline, where you get halfway through the process and suddenly you have to pay taxes and luggage fees.

Wonga does charge a £25 fine if you miss a repayment; interest is frozen after 60 days and the amount is then passed on to a debt collector. The big problem with banks and credit-card companies is that they want you to miss payments: they make money out of it. Banks hoover up £3.2bn in late fees every year in this country and that’s essentially what funds their retail-banking activities. We don’t make money if you default. In fact, we charge less than our processing costs.

And what about Wonga’s stratospheric APR” To put it into context, a £100 loan, repaid after 15 days, costs £21.11 with Wonga (cheaper, perhaps, than punitive unauthorised overdraft rates charged by some high-street banks). Its APR, however, is astronomical, as the bill would run to many times the original loan amount if stretched over the entire year because you’re multiplying and compounding interest many times over.

Damelin says APR is a ?ridiculous” measure for very short-term credit: “There’s real potential for confusion among consumers and it’s a shame there’s not a more appropriate measure approved as yet.

Damelin wants consumers to think of Wonga as a black-cab service: “The tube or bus will be cheaper but, every now and then, a taxi’s more convenient, if more expensive.

Read more on page four

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