The collapse of payday loan company Wonga was faced with numerous more responsible loan requests, including by MP Stella Creasy and the charity StepChange. They focus on the need for responsible lenders who ensure that potential borrowers can pay off their loans before entering into a contract.

The new responsible lending regulation has had a positive effect on the short-term unsecured loan market, resulting in the demise of Wonga and others offering similar products in the short-term credit market. But it is clear that this policy has not addressed the heart of the problem. Many millions of UK citizens they need short-term credit to supplement the poor and exploitative wage regimes they are experiencing in the workplace. The way many businesses operate must change.

Both chancellor in the shadow, John mcdonnell, and Archbishop of Canterbury, Justin welby, recently spoke of the fact that too many people are trapped in unsafe jobs, forcing them into “debt bondage.” This is supported by all the research, which clearly shows the growing problem of income inequality through employment contracts that are exploitative.

An estimate 4.5 million workers they have temporary or zero-hour contracts. Most of these jobs are in the service sector and reflect the needs and demands of society. The need to care for the elderly, the demand for fast food, and direct sales from warehouses, for example, all depend on the concert economy.

Employers emphasize the need to control costs, matching working hours to meet the changing nature of demand. The result is temporary or zero-hour contracts, which tend to be poorly paid. These works represent a large part of the record low unemployment levels and the expansion of the labor market in future years may well depend on the expansion of these jobs in the service sector.

It is these relatively low-skilled and poorly paid workers who are the target of payday loan companies and other short-term credit providers, not the unemployed. It is these workers who may be in a position to repay at least the original loan and interest. But it is these workers who often fall into the loan trap.

Initially, they can meet the loan repayments, but then they will go into more debt due to some unplanned mishap, such as the need to replace or repair household equipment such as a washing machine. This situation often results in defaulting on a loan and the need to take out another loan, all of which entail additional costs and interest payments on the renewal of existing loans. Subsequently, many borrowers find themselves in so much debt that they cannot pay. This remains an attractive proposition for greedy lending companies.

Nature of Lenders

In this discussion, it is important to appreciate the nature of companies operating in the short-term loan market to understand their motives and how they interact with their clients. The pie chart below shows the various costs and earnings as a percentage of total revenue for Cash America, one of the UK’s largest payday loan companies, featured in the report. Payday Loans: Fixing a Broken Market commissioned by the Association of Certified Public Accountants.

Similar patterns can be expected and seen for other payday lenders. Losses are incurred due to non-repayment of loans (often classified as bad debt). But, as the graph shows, despite significant numbers of people struggling to meet repayments, the business can still make a reasonable profit. These business models in today’s struggling economy can only be described as toxic.

Another characteristic of these companies is the sophistication and scope of their advertising and marketing. Through television, sponsorship of popular soccer teams, and use of social media, they can target and engage their customers. They also have fast and sophisticated systems to register clients in as little as ten minutes. Just type “quick loans” into a search engine and you’ll get multiple cash offers in minutes, with no credit history.

It is a highly competitive market with companies paying for high profile ad space. The question is: should there be companies that target vulnerable people in a modern society?

I would argue that investors have an important role to play in shaping the behavior of the companies in which they invest. Investors should intervene by pushing for better performance or by withdrawing their investment. This would end toxic companies that have business models targeting vulnerable borrowers and also those that pursue poor employment practices.

Supported by the United Nations Responsible investment principles is an international network that promotes responsible investment. It has a rapidly growing community that has adhered to its six guiding principles and works to incorporate these principles into its own investment and ownership decisions. The signatories of the principles have estimated investments of 73 trillion dollars worldwide.

The principles are primarily based on environmental, social and governance (ESG) issues, which are considered the three central factors in measuring the sustainability and ethical impact of an investment. There are growing evidence These ESG factors, when integrated into investment analysis and portfolio construction, can offer investors long-term return advantages.

It gives more reasons to stop investing in companies with poor working practices and payday lenders. Meanwhile, regulators must also promote investor action to address the intolerable personal over-indebtedness in society.