Corporate responsibility is a hot topic and an essential discussion for any growing industry in 2023. Online credit lenders undeniably offer an essential service to those looking to borrow money. However, the industry is no stranger to controversy, blighted with a chequered past thanks to the questionable practices of some lenders that have faced rightful scrutiny over the last decade due to the lack of regulation across the market that resulted in scandals and debt-spirals for victimised customers.
This is, thankfully, an unrecognisable credit landscape compared to what we see available in 2023 due to global reforms to online lending (better known as payday loans) from various financial authorities. These reforms took a hatchet to many of the most unscrupulous lenders and spared comparatively few providers, all of whom reformed their products in order to survive. Successful credit lenders in the twenty-twenties depend on a growing sense of corporate responsibility, especially when it comes to educating consumers about finances and avoiding debt.
Brett Van Aswegen, CEO of Wonga Online (Pty) Ltd, is a passionate advocate of this call to increase corporate responsibility from credit lenders and believes they have an ethical obligation to those who use their services so that they can become better educated about things like borrowing, interest rates, and how to build strong credit.
Over the last few years, Wonga has focused on revamping its offerings, reducing its fees, have implemented a new, flexible, 6-month instalment plan to help their customers repay with more flexibility, and have introduced their Money Academy, which is an free resource for those who are looking to gain control over their finances.
Banks and other credit lenders are responsible for ensuring that those who borrow money from them can pay it back and that the loans are managed responsibly. So, it’s equally important that online credit lenders are held to the same standards, but the question is, are they doing enough to meet the standards of corporate responsibility?
In this post, we’ll look at the importance of corporate responsibility as it relates to credit lenders and explore what additional measures should be taken to ensure that they meet the highest accountability standards.
Importance of Corporate Responsibility in Credit Lending
Credit lending is an area where the need for greater corporate responsibility is vital. Many different credit lenders exist, including banks, credit unions, peer-to-peer lending platforms, and finance companies.
Some, like banks, are subject to strict regulations but offer greater protection to their customers. Borrowing from a bank requires a good credit history but also offers lower interest rates.
For those who struggle to obtain credit using a traditional lender like a bank, there are other options, such as peer-to-peer lending or independent finance companies that have been set up to help with this. There is also the relatively new concept of BNPL which has also come under the spotlight recently.
However, suppose you’re considering borrowing from a company like this. In that case, you need to do your research carefully because not all are fully regulated, and interest rates can be extremely high, making it difficult to get on top of repayments and a costly way to borrow money. In recent years, despite the many reforms that have taken place, there have been too many media stories that have raised concerns about the practices of credit availability and eligibility checks.
These stories have claimed that credit lenders have put consumers in a dangerous situation by offering loans that are unsustainable i.e. too difficult to pay back, usually because of high-interest rates making the cost of borrowing higher than the loan itself. Some of the standard practices that credit lenders use to determine who is eligible for a loan include:
- Credit scoring
- Checking credit history and employment history
- Income/outgoing assessment
Credit lenders may use any combination of these methods to determine if a consumer is eligible for a loan. They are widely used in the industry, especially by banks and high-street lenders, and serve as a good way to determine if a consumer can pay back a loan.
Potential Issues with Current Practices
There are some areas where credit lenders are falling short and seem to be cutting corners when it comes to their corporate responsibility towards customers. Some examples include:
- Credit score is not being used properly or not at all.
- Lack of transparency around hidden fees and interest rates.
Credit scoring is a valuable tool that lenders can use to determine if someone will be able to pay back a loan. Credit scoring is complex, so if someone has a low credit score, it doesn’t necessarily mean they will not be able to repay a loan.
It just means they’re potentially more of a risk. It can also mean that they’ve not had any or enough credit previously to build a credit history that ultimately builds their credit score/
When it comes to lending transparency, consumers have a right to know what will be expected of them when repaying a loan.
It should be clear what the interest rate is, what payment schedule they will need to follow, and what happens if they miss a payment. Transparency helps ensure a level playing field between the consumer and the lender. The terms of the loan agreement should be explained to the customer using simple language that they understand.
Credit lending is a major force in modern economies, and it has the potential to shape societies for better or for worse. This has led to an increased focus on corporate responsibility in credit lending – that is, the ethical, legal, and social expectations of credit lenders.
In today’s technology-driven world, consumers have access to more information at their fingertips than ever before. They have more options and are savvier when it comes to the products and services they buy, so being a credit lender that people trust is no longer just an option, but a necessity to survival.
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