Wonga weighs up a name change as it slumps into the red
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Version 0 of 1. Wonga, Britain’s biggest payday lender, has slumped deep into the red following a series of scandals that saw it branded “morally wrong” by the Church of England. The controversial firm is considering changing its name under an overhaul masterminded by the executive chairman, Andy Haste, who was brought in last July to clean up its act and immediately hired a new management team. He warned that 2015 will be just as tough, with more losses to come. He said: “We know it will take time to repair our reputation and gain an accepted place in the financial services industry, but we’re determined to deliver on our plans and serve our customers in the right way.” Wonga, founded by Errol Damelin in 2006, became the focus of opposition to the payday loan industry, with the firm’s profits of £1m-plus a week condemned as “vulture capitalism” by Unite, Britain’s largest union. The archbishop of Canterbury accused the firm of destroying lives, and pledged to boost credit unions as an alternative to payday lenders. Wonga lurched from scandal to scandal. In June 2014, it was ordered to pay more than £2.6m compensation to customers by the Financial Conduct Authority after it was found to have sent threatening letters to customers from fake law firms. In October, Wonga was forced by the City watchdog to write off £220m of loans to 375,000 customers, who it admitted should never have been given loans. Accused by MPs of “legal loan sharking”, Wonga charged annualised interest rates of up to 5,853% and some of the loans ballooned from a few hundred to thousands of pounds. The firm’s conduct prompted the watchdog to clamp down on payday lending practices. It capped the amount of interest firms can charge so people taking out payday loans will never have to repay more than twice the sum they borrowed. The annualised interest rate is now capped at 1,500% – which means customers pay £24 interest for £100 borrowed. The average loan is “a few hundred pounds” and is typically taken out for two weeks, Haste said. Stella Creasy, the Labour and Co-operative candidate for Walthamstow who has led the campaign against payday lenders, tweeted: “So Wonga are finding predatory lending doesn’t pay – lets now make sure that’s the case for credit cards … *lock and load* #sharkstoppers.” She said she wants to take the fight to “predatory credit card lending”, arguing that credit card companies use similar practices of extending loans and raising rates and keeping customers imprisoned in deals. Related: Wonga: does the loss-making payday lender need a loan? Mike O’Connor, chief executive of StepChange Debt Charity, said: “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 must to do more to help people on low incomes to save for a rainy day so that they are less likely to need to borrow in emergencies.” Wonga’s results show it dived into a pretax loss of £37.3m last year, against a profit of £39.7m in 2013. Revenues fell 31% to £217.2m, as lending to UK consumers declined 36% to £732m, from £1.1bn in 2013. The firm lost 400,000 UK customers and now has just under 600,000 borrowers. Martin Lewis, founder of Moneysavingexpert.com, tweeted: “Wonga announces losses of £37m. So sorry to hear that! Happy to lend you some cash if you need it. Shall we say 5,000%?” Wonga made 2.5m loans in the UK last year compared with 3.7m in 2013. The firm expects a further reduction in UK volumes in 2015, the first full year in which it is operating under its tightened affordability criteria. Previously, its checks were so poor that loans were granted to people who had no chance of ever repaying them, with many living on unemployment or disability benefits. Tara Kneafsey, the head of Wonga’s UK business who joined from the insurer RSA, said: “We are focusing more on loan-to-income ratios and on people who are able to pay us back.” Haste said the future of the Wonga brand was under review – “all of that stuff is in the melting pot. We are not ruling it out or in”. He added: “The question comes down to whether it remains the only brand or one of many brands and ultimately does it stay as a brand for the overall company?” There is no rush to change the name, he said, as the firm does not want to be accused of “brand washing”. “It’s hugely important that we generate real change,” he stressed. Wonga hopes to win new customers when it restarts advertising in the UK later this year after suspending it last summer – and the ads will not feature cuddly grandparent puppets again. A TV ad made by the company was banned last April and branded “misleading” by the advertising watchdog. In the ad, one of two puppets discussing a Wonga loan suggested that the interest rate of 5,853% was “irrelevant”. The firm cancelled its UK TV ad campaign in July because, it said, it appealed to children, but continued to show similar TV ads in Poland and Spain for a few more months. Haste blamed previous commitments. The company, which sponsors Newcastle United football club, has agreed to remove the Wonga logo from all children’s replica shirts from the 2016-17 season. Its chief financial officer, Paul Miles, said there will not be any further write-offs of customer loans, beyond last year’s £35m bill. As part of the changes, the payday lender is slashing a third of its workforce, 325 jobs, mainly in the UK and Ireland. The move was announced on the same day the Competition and Markets Authority set out new rules to force payday lenders to be clearer about their charges. Wonga is looking to launch new products this year and may need to raise debt next year to keep funding the business. While the UK payday loan market is 2.5-3 million people, Kneafsey said the firm has identified a bigger market of 13 million people who do not have access to mainstream banking. The company’s UK main default rate has improved to 6.6% from 6.9% as fewer people fall into arrears. Haste said before the changes, 15% of customers were unable to repay their loan on the first day; that figure has now halved. Based in London, Wonga also provides short-term loans to consumers in South Africa, Poland, Spain and Canada. The UK slowdown has been partially offset by growth in Wonga’s international businesses, including BillPay, which provides payment services to retailers and consumers in Germany, Austria, Switzerland and the Netherlands. Overall, the group had 3.7 million customers at the end of 2014. Haste said he joined Wonga because he believes “there is a real need and demand for short-term credit”. He added: “It is clear to me that there is an important role in society for such credit providers, but only if they put their customers first and lend responsibly. Regrettably, that has not always been the case at Wonga. The new management team is tackling deep-rooted issues.” • This article has been amended. An earlier report said that Wonga had lost 1m customers. In fact it had 1m borrowers but now has 600,000. |