21st April 2015
Payday lender Wonga has posted a pre-tax loss of £37.3m for 2014 as the company tries to overhaul its business model to fit with new regulation.
Wonga made a pre-tax profit of £39.7m in 2013, but last year it agreed to pay compensation of £2.6m to 45,000 customers for using fake legal letters to chase debts.
It also wrote off debts of £220m after failing to properly check that customers could afford the loans they took out.
Payday lenders now faces strict new rules from the Financial Conduct Authority (FCA) requiring them to carry out checks that customers can afford what they borrow.
The regulator says it expects that a number of payday lenders will leave the market and Wonga revealed that the rules have increased its operating costs by 12%.
The rule include a cap on the cost of loans. They also prevent lenders from rolling over a loan more than twice or attempting to take money from a borrower’s account more than twice.
Earlier this year, the company announced 325 job losses – more than a third of its staff.
The company withdrew its advertising campaign featuring puppets after fears that it might attract the attention of children.
It sponsors Newcastle United but has agreed to remove its logo from all children’s shirts from the 2016-17 season.
Mike O’Connor, chief executive of StepChange Debt Charity, says: “The crackdown on the payday loan market is having an effect but we still need to address the fact that many people need financial help. Payday loans can make people’s problems worse and we need alternative ways of meeting the need for credit.
“More loans are not always the answer. We need creditors to give people who are struggling with debt more breathing space and it is vital that future governments continue with the review of debt administration which the current government has promised. With personal debt on the rise, there will be more people who fall into difficulty under any government. We need a range of alternatives to payday loans and we must to do more to help people on low incomes to save for a rainy day so that that they are less likely to need to borrow in emergencies.”