Profits at Wonga half after it’s forced to pay out millions to customers who it threatened with fake legal letters
Wonga, the controversial payday lender has seen its profits half after the firm had to pay its customers millions of pounds after the lender was found guilty by the City regulator of “unfair and misleading debt collection practices” after it was caught sending fake letters to its customers.
The fact the lender sent 45,000 legal letters portraying to be from genuine law firms to its customers raises the question of what the payday lender really thinks of its customers. The scandal at least hit the lender where it hurts most. Its wallet. The Financial Conduct Authority (FCA) which fined Wonga, redress to customers and associated costs has cost the firm £18.8 million, dragging Wonga’s 2013 full-year profits down 53% to £39.7m, compared to £84.5m in 2012.
Wonga which charges interest rates as high as 5,853% a year, actually saw an increase in loans of 8% in 2013, compared to 2012. The lender lent a total of £1.3bn to 4.6m people during 2013, seeing revenues up 2% to £314.7m, with a loan default rate of 7%, down from 7.4% in 2012.
In a statement Wonga tried to blame other factors in their drop in profits. Wonga said: “The decline in profits was driven by remediation costs related to historic debt collection and systems issues, and continued investment in staff, infrastructure and Wonga’s international businesses.”
Tim Weller, Wonga’s interim chief executive, said: “Investment in people, processes and our international businesses were key factors in the decline in Wonga’s 2013 profits, and we will continue to invest to build a sustainable business.”
The statement continued, warning investors, majority of whom are US-based venture capital firm that the company would be “less profitable in the near term”. A spokesman said no executives would be made available for comment on Tuesday.
Wonga’s Andy Haste, a respected former City veteran who was brought in as executive chairman in July 2014, on £500,000-a-year following a series of scandals to hit the firm said: “Wonga has understandably faced criticism and we know we need to repair our reputation and regain our right to be an accepted part of the financial service sector,”
It just goes to show that Wonga’s profits rely heavily on their customers not paying on time. Considering that the FCA are clamping down on payday loan companies and their lending practices it will be interesting to see if Wonga’s long term profits are affected considering it is more than likely that the lender will have to change its business model.