The new rules set by the Financial Conduct Authority (FCA) to stop irresponsible lending, have hit Britain’s biggest payday lender hard. Leaving them £37.3 million out of pocket.
Wonga, as well as other large payday lenders, have frequently been the target of public outrage over their 5,000% APRs charged for short term loans.
But now they are slipping into the red themselves and expected to report their revenues dropping from around £315m to £215m by the end of 2014.
This is their first ever reported annual loss after years of making big profits, their largest being an £84.5 million profit in 2012.
The firm is still sitting on cash assets worth £125 million, but is ironically expecting to turn to borrowing in coming years.
Financial watchdog closely watching Wonga
In October 2014 the company was forced to write off the debts of more than 330,000 of their customers as part of a forbearance plan with the FCA.
This was before the new lending rules from the FCA took force in January 2015, which capped interest and fees at 0.8% per day of the amount borrowed. Fixed default fees cannot be more £15 and the total cost of a payday loan cannot exceed 100% of the amount borrowed.
The end of the road for payday lenders?
As a result of these new rules the FCA expect to see only four survivors in the payday loans industry and estimate that firms will lose approximately £420m of annual revenue across the sector.
Or put another way, 99% of the UK’s 400 payday lenders are likely to close in the next few years.
Wonga plans relaunch
In an attempt to rebrand themselves Wonga plan to change their name and ditch their puppet adverts. As put by Wonga’s UK Chief, Tara Kneafsey:
“No puppets will feature, nor anything that looks like a puppet.”
Alternatives to payday loans
Whilst very expensive, payday lenders’ relaxed borrowing rules made their loans a last resort for many. The problem remains that despite demand, small short term loans are not readily available from major lenders, and there are few avenues for vulnerable borrowers to turn to.
If you are are struggling with debts, independent financial advice is available free from a number of financial advice charities who might be able to help you sort your situation out.
Read more on alternatives to payday loans. And remember as a rule the cheaper ways to borrow are:
- Credit cards which can be used for purchases, and balance transfer cards can hold debt to clear existing cards.
- Personal loans are typically the cheapest way to borrow large sums of money to be paid back over a longer period, but there are fixed monthly repayments you must meet until the loan is paid off in full.