30th September 2014
Profits at payday lender Wonga have halved after the company faced a compensation bill for using unfair tactics against customers.
Wonga’s profits dropped by 53% from £84.5m to £39.7m in the year to December 2013.
It attributed the fall in profits to “remediation costs related to historic debt collection and systems issues” as well as investment and international expansion.
The company, which charges interest rates equivalent to 5853% per year, expects to be “smaller and less profitable” in the future.
In June, Wonga was ordered to pay £2.6m in compensation to up to 45,000 customers after it was found to have invented law firms in order to put pressure on borrowers to pay back their loans.
The imaginary firms had names such as Barker and Lowe and Chainey, D’Amato and Shannon.
The company also admitted earlier this year that it had over-charged 200,000 borrowers due to a technical error.
The lender’s accounts include an £18.8m provision for compensation relating to these issues.
Since July 2014, all payday loan companies have had to meet new rules limiting the roll-over of loans and requiring better affordability checks. From January 2015, there will be a cap on charges.
Wonga brought in Andy Haste on £500,000 a year to help salvage the company’s reputation following a series of scandals.
Haste, a former executive of the insurer RSA, joined Wonga as executive chairman in July following the departure of the founder Errol Damelin and former chief executive Niall Wass. He is acting as chief executive and chairman while Wonga seeks a new permanent chief executive.