Wonga seeks to offer 4214% APR Paylater loans to US customers

Online customers who lack credit cards may have an even worse option for making payment. Instead of taking out a 491% APR payday loan, customers may soon choose to complete their purchase using Wonga’s Paylater loan service at a 4,214% APR. To compare, most credit card interest rates average less than 18% APR.

A report by the BBC confirms that British lender Wonga has partnered with Cotswold Company to provide its Paylater loans to customers of the furniture company. Speculation cited by The Times of London was that Wonga was pursuing a purchase of On Deck Capital, which would have opened up the American market to its Paylater loans. The report was dismissed as “rumours and speculation” by a company spokesperson.

Still, the company’s CEO Errol Damelin has stated that he intends to take the company global. The US market has always been an attractive source of new customers for any lender, making it an obvious goal for expansion.

What companies like Wonga must first do is determine how the current regulations might apply to them. Companies have long tested consumer protection and usury laws by seeking loopholes in regulation. Credit card companies established bases in South Dakota in order to take advantage of its business-friendly rate laws. They then provided credit at rates above the usury limits set by individual states through a federal loophole that preempts state laws. South Dakota has no usury limit, thereby allowing companies operating from its soil to charge whatever interest rates they want.

Some payday lenders have successfully skirted state laws that ban the practice. North Carolina banned payday lending through a legal fight in 2005-2006 that saw storefront payday lenders shut down. However, many out-of-state payday lenders still provide payday loans in NC with impunity. Debtors Unite confirmed through a call with the office of the Attorney General that the agency lacks the enforcement capabilities to effectively block payday lenders operating from other states.

That limitation has not stopped other states. West Virginia has aggressively pursued litigation against a number of payday lenders and other predatory loan companies who target state residents.

Such actions have prompted creative attempts to avoid usury limits. Martin Webb established Western Sky Financial and several affiliates that sell high interest loans through online advertisements and mass-market television commercials. The firm claims it is exempt from state usury laws because it is operating from the “sovereign nation” of the Cheyenne River Sioux Tribe. That claim has been successfully challenged by Colorado, West Virginia and the Federal Trade Commission.

If Wonga does enter the US market, it will indeed have to navigate a difficult regulatory environment. Still, it is unclear how vigorously various regulators would pursue action against a foreign firm.

Customers who are considering using Wonga’s Paylater service should carefully consider the incredibly high cost of the loans. It makes zero sense to purchase items using such a high interest rate service, yet American consumers frequently rely on credit to buy things that they cannot yet afford. It is this insatiable demand for credit that makes the US market so attractive to high cost lenders such as Wonga.

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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