Yesterday’s decision by the Wonga payday loan company to write off debts of more than 300,000 customers points not so much to the power of the Financial Conduct Authority as to the community’s demand for a new ethic in business.
In its deal with Wonga, the FCA, which took over regulation of the payday loans sector in April, agreed that a further 45,000 borrowers will not need to pay interest on their loans.
It is, of course, Wonga’s exorbitant annual interest rates – up to 5800 percent – that have led to charges of loan-shark style behaviour.
The company offers people unsecured personal loans online, via its website and mobile apps accessed through PCs, tablets and smartphones.
Its practices demonstrate the danger of using instant gratification technologies to suggest, even remotely, that present choices carry few future consequences.
Whilst there is clearly a moral responsibility on the part of the lender to look carefully before leaping into a loan, there is arguably as great a responsibility on the part of the lender to make clear what will happen in the event of a default.
Putting interest rates in small figures on the bottom of a TV commercial is not enough – indeed, it is almost useless when the commercial itself is offering a utopian fix-it-now answer to debt.
The lender should set its sights on promoting healthy fiscal responsibility as opposed to taking advantage of either ignorance or desperation.
The FCA clearly agrees with this line of thinking. However, the real pressure on Wonga has not come simply from the FCA – though it probably wouldn’t have acted at all without the legal incentive.
Wonga knows that it has been acting in a way that is counter to the run of public thought. It has sought to ignore ethics at a time when values are coming to the fore in debates about business practices and goals.
Ethics, as the branch of philosophy, broadly asks two questions. The first is: What’s the right thing to do? The second: How might I apply moral principles in a given, perhaps complex, situation or to a particular pragmatic problem?
In the wider society’s attitude to business – indeed within sections of the business community itself – the search for a new ethic has been going on for some time. Arguably, the same can be said for all of the most influential sectors of British society.
During the Great House Clean of 2010-2011, the ethics of almost every foundational institution were called into question.
What started with a loud and passionate debate about the trustworthiness of the banks, as the recession began to bite, quickly spread to questions about the behaviour of MPs amidst the furore over their expenses.
Then the police and courts were called into question in the aftermath of the riots in London and other cities. Meanwhile, universities were grilled about the way they so enthusiastically – some would say, greedily – took to a newly instituted academic fees structure.
Science came under the spotlight, too, on a number of fronts. There were heated discussions between pro-climate-change advocates and those who loudly questioned their pronouncements – if not about the existence of warming, at least on the prognoses for future change.
In more recent times, questions have been asked about whether public faith in medical science has been abused by a some medicos. Some inadvertently or otherwise seem to play to the interests of Big Pharma by hastily offering drugs as the only viable treatment for whatever ails us.
A report last year revealed that the number of British deaths involving tranquilisers and strong painkillers had risen by 16 percent over the previous five years.
Since 2003, the number of such prescriptions per year has jumped by more than 60 percent. This growth has featured drugs prescribed for anxiety and depression as well as those used to deal with pain.
Meanwhile, 11,000 women were hospitalised in 2011-12 with antidepressant poisoning. Apparently this is now a bigger problem in the UK than heroin addiction. It is right that questions should be asked about medical and scientific ethics. (See the 2020Plus editorial on this here.)
The media and press soon found themselves under the glaring ethics spotlight, too, with the emergence of claims about phone hacking.
Though claim and counter-claim had been floating about since 2005, this debate became particularly acute after revelations in 2011 that a missing schoolgirl’s phone had been hacked.
The hacking of Milly Dowler’s voicemail system by reporters led to expectations that she may still be alive when in fact she had been murdered.
So strongly did the public react to this story that one of the nation’s oldest tabloids eventually closed its doors forever. (Hacking claims continue to appear nine years after the first stories emerged.)
During this period, the Catholic Church was also under suspicion in some quarters for its handling, or mishandling, of historic child abuse cases. The ripples continue to impact some sections of the Catholic Church and other religious organisations – and, in most cases, rightly so.
Since its inception in October 2007, Wonga has offered what appear to be quick and easy loans to people who need money fast.
It has invested heavily in advertising, making applying for a loan seem the most natural thing in the world. It has offered no support services for people who can’t pay up on time; nor has it provided access to the thing many people need more than money – sound long-term advice on how to budget.
Wonga and other companies like it have prospered because of a public perception that banks are disinclined to help ‘the little guy’, being preoccupied mainly with big business.
This perception is not without foundation, as even small-to-medium businesses find bank loans hard to come by.
The banks are, of course, right to refuse loans to people who have not demonstrated adequate financial planning or forethought about the implications of owing money.
Banks are culpable, however, in that they play to the stereotype of being driven by a corporate culture that cares too much for profits and too little for people.
The wider business community is becoming more aware of – and in some cases responsive to – the growing push for ethical behaviour coming from its customers and stake-holders.
My work often involves giving keynote presentations to business and civic leaders. In conversations with leaders of enterprises large and small, I see an increased interest in finding ethical solutions to the social and business challenges of our time.
In part, this change is driven by the rise of the so-called Millennial Generation into leadership within business.
The cohort, aged roughly between 16 and 33 years of age in the UK, place a high premium on trust. This is perhaps a consequence of their having been the most parentally nurtured – some employers would claim over-nurtured – generation in recent history, generically speaking.
To a large degree, this generation, armed as it is by powerful digital technologies, has driven the trust revolution which began in person-to-person retail a la Ebay and spread through micro-finance lending and crowd funding.
In each of these types of business, trust is the key currency and ethical behaviour is a matter of survival.
It is the Millennials who, more than any other group, have made unlikely cult heroes of academics such as Michael Sandel of Harvard University and Debra Satz of Standford University. Both are ethicists who call for a re-examination of modern markets and business practices.
Both follow in the footsteps of the original champion of free markets, the Enlightenment thinker Adam Smith. He advocated that business can and should be about producing positive social change, at the same time as making profits.
Though his teachings have had a profound impact on economics, Smith was not educated as an economist. He was a moral philosopher, or what we might call today an ethicist.
Arguably, ethics is moving closer to the forefront of business decision-making in many circles, as post-recession moral concerns, heightened by Millennial sensibilities, call into question behaviours that would have been considered normal, even desirable, a decade ago.
Whether there is to be anything approaching a true ethics revolution in business remains to be seen.
One thing, however, is certain. As Wonga is discovering, companies that intend to overlook their social responsibilities will need to think again; not just because government authorities are watching their behaviour more closely, but because they will have public sentiment and, perhaps in time, activism working against them.