Profits at controversial payday lender Wonga more than halved last year as the company embarked on a campaign to clean up the company’s image, it was revealed today.
Wonga said the 53% drop in profits to £ 39.7million in 2013 was in part due to a single charge linked to a recent scandal over bogus legal letters.
These were used to push distressed customers into paying, and Wonga racked up £ 18.8million in costs related to the scandal.
The company said it expects it to be “smaller and less profitable” in the short term while building a more sustainable business for the future.
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Payday lender: Wonga said he expects it to be “smaller and less profitable in the short term”
The company, which has been attacked by MPs for charging interest rates over 5,000 percent, was expected to post annual profits of £ 50million for 2013 from £ 84.5million in 2012 .
But the crisis revealed today was even worse than expected and is also believed to be due to difficulties in its overseas operations and in small businesses.
Wonga issued 4.6million loans in 2013, an increase of 15%, and lent a total of £ 1.3bn, up from £ 1.19bn the previous year.
Revenue rose 2% to £ 314.7million, but operating costs jumped 56% to £ 133.7million. The default rate on loans fell to 7% from 7.4% in 2012.
New strategy: Wonga ends its puppet ads to prevent young people from going into debt
Michael Ruck, Senior Financial Services Enforcement Lawyer at Pinsent Masons and formerly the Financial Conduct Authority (FCA), said: “Such a large drop in profits reflects both the impact of FCA regulation and the current reputation of payday lenders.
Wonga and similar businesses must stop shooting themselves in the foot pretending to be lawyers to get clients’ money
Michael Ruck, financial lawyer
“The companies are in the process of knowing if they have obtained the FCA authorization. Despite the large amount of time and money invested by companies, they must understand FCA standards and approach, including how to challenge FCA.
“Wonga and the like need to stop shooting themselves in the foot by doing things like pretending to be lawyers to get clients’ money.”
In July, he called on former RSA insurance group CEO Andy Haste to head the group, replacing founder Errol Damelin, who left earlier in the year, with the aim of cleaning up his company. reputation damaged.
At the time of his appointment, Mr. Haste said, “This is an industry and Wonga is a company that must undergo significant changes if it is to have a sustainable future.
Compared: While Wonga’s revenue increased by £ 5million, their costs also increased by almost £ 50million
Discouraged: Wonga sponsors Newcastle United FC, whose players are seen after losing to Stoke City last night
“Serious mistakes have been made. The company admitted these errors and apologized for the errors.
ONLY ONE IN FIVE GET FREEZED INTEREST DESPITE THE CRACKING
Only a fifth of people struggling to repay a loan have seen interest frozen and only a quarter thought the lender treated them kindly, according to a survey today.
Figures from a Citizens Advice survey carried out between April and August this year also showed that just one in three people thought the costs of extending a loan were clear.
Meanwhile, one in five was made aware of the availability of free debt advice, and half of clients said payday lenders asked them about their personal finances.
Gillian Guy, CEO of CA, said: “Payday lenders still don’t keep their word to treat people fairly.”
A separate analysis of CA clients with severe debt problems also found that one in eight had a payday loan and £ 1,000 was the average debt on a payday loan.
In June, Wonga was fined £ 2.6million for sending threat letters from bogus law firms to 45,000 clients by the city’s watchdog, the Financial Conduct Authority ( FCA).
The FCA said Wonga was guilty of “unfair and deceptive debt collection practices” by setting up bogus companies to pressure troubled customers to pay their bills.
Payday lenders have been attacked by MPs as a form of “legal loan sharking”.
In July, the Church of England ended its indirect investment in Wonga – a stake that embarrassed the Archbishop of Canterbury, Justin Welby, who said he wanted to do away with Wonga by increasing the use of co-ops in credit.
The FCA is also going after short-term credit providers, offering a cap on payday lending at the start of the summer, which means that from next January, interest and fees must not exceed 0. , 8% per day of the amount borrowed.
He also wants to put a cap on the overall cost of a payday loan so that it cannot exceed 100 percent of the amount originally borrowed.
Earlier this month, in a bid to bolster the payday lender’s staff, Mr Haste recruited Tara Kneafsey as managing director of its UK consumer lending business. Ms. Kneafsey previously spent six years with the insurer RSA.
5.853% INTEREST RATES, FALSE LETTERS AND “LEGAL LOAN SHARKING”
In recent years, payday loan companies – which have been attacked by MPs as a form of “legal loan sharking” – have come under the spotlight for crippling interest rates.
Wonga, for example, charges 5,853% annual interest. For a loan of £ 100 over 30 days, he charges £ 37.15.
The Archbishop of Canterbury, MPs and debt activists have joined in the growing clamor of criticism that has left these short-term lenders referred to as “legal usurers.”
Justin Welby: In July, Church of England investment arm cut ties with Wonga, after Archbishop of Canterbury (pictured) criticized the payday lending industry
In July, the Church of England investment arm cut ties with Wonga, after the Archbishop of Canterbury’s criticism of the payday lending industry.
Wonga’s reputation was further tarnished this summer by a legal fake letter scandal. It was revealed that the firm had hunted down troubled clients with letters from legal firms made up to get them to pay.
Between October 2008 and November 2010, the firm sent correspondence to approximately 45,000 overdue clients of non-existent law firms threatening legal action.
Annual results: Wonga’s pre-tax profit fell 53% to £ 39.7million in 2013, compared to 2012
The case, which consumer activists have described as a “shocking new low” for the troubleshooting industry, also saw Wonga add fees to some customers’ accounts to cover administrative costs for mailing letters, fictitious companies Chainey, D’Amato & Shannon and Barker and Lowe Legal Recouvrements.
Wonga boss: In July, he brought in former RSA insurance group chief executive Andy Haste (pictured) to lead the group
The Financial Conduct Authority has announced that Wonga is due to pay £ 2.6million in compensation to affected customers.
Part of new chairman Andy Haste’s strategy to clean up the company’s image was to ditch puppets in its TV ads and marketing to limit the risk of making its payday loans appealing to young people.
Ads for his loans featured a group of supposedly cool and hip retired Betty, Joyce and Earl in funny situations.
But debt activists said the tactic made high-cost loans fun and normal for young people and children.
The debt charity StepChange recently said the number of people struggling with payday loan debt has increased by more than 13,000 in the past year.
It said it treated 43,716 people in the first six months of this year, up from 30,762 for the same period last year.
Some people have become so indebted to payday loan companies that it has led to suicide.
An investigation in July learned that Ian Jordan of Botley, near Southampton, was forced to commit suicide after accumulating debts of more than £ 20,000 with at least nine payday loan companies, including one was charging him 5,000 percent interest.
Loans: Wonga’s reputation was further tarnished this summer by fake legal letter scandal
In July, the FCA announced proposals to introduce a cap on fees and interest charged by payday loan companies in an effort to protect borrowers from escalating debt.
The proposals, which include a default charge capped at £ 15 and a limit of 0.8% per day on interest on overdue balances, should mean that those who cannot repay on time will never have to repay more than charges as the amount borrowed.
The latest crackdown on the industry by the FCA is expected to take effect in January, subject to a consultation period.