Controversial payday lender Wonga has announced a £37.3 million pre-tax loss for 2014 – almost completely reversing the £39.7 million profit they made in 2013.
The largest UK payday lender, Wonga has been forced to overhaul its business following a crackdown on the industry by the UK regulator, the Financial Conduct Authority (FCA).
The FCA became responsible for regulating the market in April last year and imposed new rules ensuring borrowers never have to pay more than double the amount borrowed and limiting the number of times firms can rollover loans and gain extra fees.
Stricter affordability checks have also been brought in to make sure cash is not advanced to customers who can’t make the repayments.
FCA chief executive, Martin Wheatley, said at the time the new regulations were introduced that he expected it would reduce the number of payday lenders to just four or five.
The lender has overhauled its management structure with three chief executives leaving the company within a year. They recently revealed they are cutting the size of their workforce as part of a cost reduction exercise.
They announced 325 redundancies in February – a third of the workforce – after new chairman Andy Hastie said the group could no longer sustain its high cost base ‘which must be significantly reduced’, making the company ‘smaller and less profitable.
He said: “Our focus is on creating a business that meets the demand for short-term credit sustainably and responsibly, resulting in good customer outcomes.
“We’ve already made significant changes, including appointing a new leadership team, implementing a new risk decision engine and tightening our lending criteria.”
Wonga was hit by a double whammy last year when they were forced to write off £220 million worth of debt for 330,000 of their customers after they agreed with the FCA that the borrowers would not have qualified for a loan under the new affordability checks.
They were also forced to pay £2.6 million to thousands of customers after sending them debt collection letters which claimed to be from non-existent law firms.
Industry experts believe the payday lending industry has to focus on better standards and look to offering different products if they are to survive.
Business consultant John Lunn said: “There is a gap that high street banks are unable to fulfil. The Wonga model has been based on short term loans, high interest rates and significant charges. It could look to the credit union model of longer term loans, but to do that it needs to understand its customer base.”