If you ask a major bookmaking company about pay day loans they will tell you that to borrow money at extortionate rates of interest should be made illegal. One said to me last week: “I cannot understand how the government allows this”.
If you talk to the director of a pay day loan company (and I have), they tell me that the proliferation of roulette-style games on the high street is wrong and the government should act to stop it.
So who is right?
Let’s look at some facts.
Fixed Odds Betting Terminals (FOBTs)
• The average amount spent by a customer on a B2 gaming machine is circa £10 per machine per hour.
• The percentage of identified problem gamblers playing on B2 machines actually went down by 21% from 2007 to 2010 (from 11.2% to 8.8%).
• The 2010 British Gambling Prevalence Survey found that B2 Gaming Machines (FOBTs) players are more likely to be educated to degree level or higher than to have no formal qualifications. The overwhelming majority had GCSEs, A-Levels or another professional qualification.
• The 2010 British Gambling Prevalence Survey found that those who are unemployed are far more likely to participate in other forms of gambling than playing B2 Gaming Machines.
Of those surveyed 53% said they gambled on the national lottery, 32% scratchcards, 23% slot machines, 21% Horse races, 18% private betting, 18% sports betting, 16% another lottery, 15% online gambling, 14% bingo and 12% said they played on B2 gaming machines.
• Statements such as “you can lose £18,000 an hour playing on a B2 machine” are a total fabrication. It assumes you play the maximum stake of £100 every 20 seconds and lose everything on 180 consecutive spins. The statistical probability of that happening is akin to buying a single National Lottery Ticket and scooping the jackpot 3 weeks in a row.
Pay Day Loans
• The Internet has made access to loans much easier and has taken away the stigma of applying for a short term loan.
• Two thirds of applicants are rejected as a bad credit risk.
• Wonga makes £15 net profit per loan. Sounds a small amount, but capital is turned over many times in one year.
• The default ratio is high, as much as 20% with some lenders. One in five customers does not re-pay.
• 92% of Wonga’s customers would recommend to a friend.
• Pay day APR’s are 5853% but loans are small – between £100 to £150.
The simple answer is that there is a case for both. FOBTs have the highest payout of all betting shop products which is why punters are so attracted to them. Like everything in life people should be responsible for their own actions and although addiction is a serious problem the ninety two percent of customers should not have their fun removed for the few.
The pay day loan exists because people have been caught on the hop by the credit crunch. Wages have not increased with inflation for five years and anything not budgeted for, such as a car breakdown, creates real stress . The rates are very high and loans should not be taken out lightly but if it gets a person out of an awkward situation, who is to say to the contrary.
So why do both condemn each other.
The answer is that we all believe what we read. The media takes sides and the largest newspapers egged on by politicians have come down against both industries. Lenders and bookmakers simply cannot get their message across.
The ‘anti’ movement against both has taken on religious proportions and, as you know, religion is something you cannot argue against.
Common sense will prevail because governments have to act responsibly and my prediction is that pay day loans will come through the Competition Commission’s investigation with some minor changes and the bookmakers will survive the Triennial Review on slot machines.
For all those politicians who think that borrowing money is such a bad thing please explain this: Why does the government’s debt current stand at £1,216,000,000,000 (GB£1.2 trillion) with a yearly interest bill of £43 billion?