Payday Loansharks, Don't Bother!!

With the price of living drastically rising, and wages only slowly increasing, UK citizens are turning in numbers greater than ever to payday loansharks to plug the gap! Between 1999 and 2009, the average personal debt rose by 158%, making it harder than ever for those already struggling. This is where the predators came into play, with Wonga offering loans with attached interest charges of up to 4200% (2013 figures), the public saw it as quick and easy cash. Months later when the loan wasn't repaid, unsuspecting customers were landed with a fat amount of debt, of which many could not afford. This is known as Usury, the crime of charging and unethical level of interest on a loan. For those in desperate need of cash, it was a temporary fix and easy to obtain, with no background checks, no security and no processing it was a gift - so they thought. Although, the question that should be asked is do these individuals bear responsibility for their indebtedness? should they not carry out their own due diligence before they invest?

Many argue that these loansharks target the vulnerable, but I think its more of a case of the customers not carrying out enough research into the investment. All the figures are sitting in-front of them, so customers should make themselves fully aware of the risk they are getting themselves into. Saying this, we should be steering away from a growth industry that exploits desperate people, its simply unethical!



It comes after Kane Sparham-Price's death that the FCA decided to intervene. The vulnerable teenagers bank account was drained after loaning money from Wonga, unaware of the extraordinarily high interest rates. Although Wonga did not act unlawfully, the draining of his bank account, leaving him penniless may have been a factor that led to his death. In 2014, the FCA requested information about the volume of Wonga's relending rates and from this saw that it was 'not taking adequate steps to assess customer's ability to meet repayments in a sustainable manner' (FCA, 2014). This highlights a fundamental PIPCO principal 'professional competence and due care' that has not been followed. Wonga was forced to write off £220 million of debt, some 330,000 borrowers who were in excess of 30 days in arrears. Furthermore, 45,000 customers were only asked to repay the amount they borrowed, interest free.



Wonga need to ensure that they lend affordably and responsibly in the future. Even though Wonga claim to carry out credit checks and use "behavioural algorithms" in order to find suitable clients, vulnerable people are still being targeted! With many reports of individuals unable to repay their loans, who were already financially unstable, sadly ending their lives. These people should have been blacklisted by companies like Wonga, to prevent them from becoming more financially distressed.


Why is it that those who are suffering financially don't just turn to banks for loans instead of these loansharks? Many may already have poor credit ratings and so banks will not loan to those when they may not see a return. This is a serious reoccurring problem which has only worsened after the financial crisis.


One final issue to address is the ethical dilemma raised when Wonga sent out letters to customers in order to intimidate them, even though they were completely FALSE! Absurd and unethical in my books!

Madoff's 'Titanic Crime'

Bernie Madoff, one of the greatest con-men of all time was sentenced to 150 years imprisonment back in 2009 for a crime that went unseen for decades. So how did he manage to fool so many people for so long?

The so called 'lion' of wall street, swindled billions of dollars from investors, with offers that were certainly to good to be true. This should no doubt be the biggest lesson that everyone should take away from the Madoff scandal. With steady annual returns, no matter what the state of market, people believed this was the safe option to take with their money and so began investing largely, worldwide. It is this kind of performance that should have raised flags from the first time the market took a bad turn. How was Bernie still making delivering high returns despite the market taking a turn for the worse? Stock investing is no doubt a risky investment, returns have fluctuated wildly in past decades but it is possible to beat the market for some time although eventually the winning streak will stop at some point. So how is it that Bernie managed to beat the market year, after year?

Madoff's high annual returns and ultra safe investment filed in the face of the "Eat Well, Sleep Well" principle of investing, in reference to risk and reward. If you want to gain high returns for your investment (Eat Well), you must take on high risks that will prevent you from sleeping well. Alternatively, if you invest in risk-free investments (Sleep Well),  you will receive considerably smaller returns, hence not eating well.

Madoff claimed to implement the split strike conversion strategy that involved investing in a basket of 40-50 stocks from the S&P 100. He then promised to "opportunistically time" his purchases and would occasionally roll the money into Treasury Notes. Also claiming to use option contracts, it limited his potential losses caused by unpredictable stock price movements. He fooled investors by sending out fake statements created by the firm showing how he kept to his promise of delivering the gains. Investors were content, those who wanted to withdraw their money did so with no problem, as their were simply paid with someone else's investment. Ironically, they were the only ones that received the imaginary gains.

        'Everyone wants something for nothing, you just give them nothing for something'

When Harry Markopolos tried to out Madoff as a fraud almost a decade before his conviction, SEC didn't listen to him. Why? Simply because they thought it was too big to be a scam, and simply brushed the case off their shoulders without investigating any further! With SEC failing to do their due diligence into the case, who now would be powerful enough to stop Madoff? It took the credit crunch years later to bring him to his knees. Investors demanded money, and fast. With so little money coming in, Bernie simply could not afford the pay-outs being demanded. For the first time, his ponzi scheme was publicised worldwide. Finally, some justice!
There are several lessons that we should take away from this case:
- If something looks too good to be true, it probably is!
- Never put your eggs in one basket and ensure you get a second opinion on any investment!
- Don't rely on collective due diligence, reputations aren't always everything, independent verification is needed!

How big is the psychological impact of M&A's on employees?

A study carried out by KPMG in 2004, involving 700 mergers & acquisitions, showed that between 50 and 70 percent of M&A's fail to achieve their objectives. Not only did they fail to achieve revenue and cost synergies, but in many cases the failed M&A diluted shareholder value! What some people don't realise is that the human dimension of M&A's plays a large part in their failure or success, with studies showing the cause of over half the failures being down to not addressing the human dimension.

“Mergers and acquisitions represent a significant and potentially emotional and stressful life event because they change an individual’s working life significantly but fail to provide an individual with any control over the event”
                                 (Cartwright and Cooper 1992) 

In addition to this, there are also a number of direct commercial impacts of M&A's including a rise in unwanted turnover and loss of good staff, significant decrease in employee engagement which therefore leads to a fall in productivity and performance and an increase employee stress levels which quickly manifests into increased sickness and absenteeism.

Throughout the M&A process, there are typically four key problems which arise, these being:

1. Neglect of psychological issues
2. Inadequate communication throughout the merger process
3. Cultural clashes between both organisations
4. Ambiguous company direction and unclear roles and responsibilities

M&A's can actually cause what is identified as "merger syndrome", creating uncertainty and widespread psychological effects on employees throughout the business. Am I stable in this position? Will I be moved? and will I get along with my new colleagues? are some of the questions employees are faced with as a result of M&A activity. This so called "merger syndrome" has the following psychological impacts on employees:

• Social Identity - employees can lose their old organisational identity. This can have detrimental effects as employees who identify themselves to their previous organisation may feel lost, angry and will be less inclined to accept the change
• Anxiety - employees become uncertain of their future job prospects and their career which results in a decline in productivity as they begin to show 'survival-seeking behaviours'. In the long term, anxiety can begin to cause psychological and physical illness, leaving employees with a lack of motivation and a rise in stress levels which can cause operational tension
• Acculturation - typically arising in most horizontal mergers, adapting to a new culture can cause a serious increase in resistance and have serious inter-organisational culture conflicts
• Role Conflict - employees may struggle to see where they stand after M&A activity, as their existing roles and reporting structures may have been disrupted 
• Job Characteristics - In many cases, employee job circumstances decline post-merger, resulting in a decline in job satisfaction and engagement
• Organisational Justice - organisations need to be transparent with who they are laying off and must be honest in the decision-making process as employees will begin to lose trust if they are not. This is shown to have the largest impact on employee attitudes and their behaviour post merger

Although these issues are manageable, organisations need to ensure they build the communication and engage with their employees when these issues arise, with employee attitude measures in place in order to try prevent it. One of the most important factors is the attention they pay to employee stress, managers need to beware of "merger syndrome" and have effective methodologies in place to tackle it. Neglecting these issues can have major consequences on productivity, eventually destroying shareholder value - the last thing a business needs!