Wonga report loss of £37.3m

The pay-day loan company Wonga have announced a yearly loss of £37.3m in 2014.  This news comes at the time when the company is undergoing a large reorganisation.

This loss represents a massive turn around in the company’s fortunes since 2013 – a year that they recorded £39.7m profits.

The company has been a centre of huge controversy in recent years, due to the dubious means by which it seeks to receive its repayments.

In 2014 it sent many of its customers letters from non-existent law firms in an attempt to recall its debts.  It has since apologised and agreed to pay out compensation to the customers that were affected.  The cost of these compensations ran up to around £2.6m.

Wonga also had to write of about £220m worth of debts lent to over 300,000 customers.  This came as a result of them being judged to not have properly assessed whether or not these customers were in a suitable position to repay their loans.

Wonga is currently predicting another loss in 2015.

Falling business

Wonga’s revenues have dropped by 31% in 2014, since 2013.

It is also lent out around £732m in 2014, this represents a 36% fall from the £1.1bn worth of loans that they made in 2013.  Their total number of customers fell from 1 million to around 575,000.

Andy Haste, who has been the chairman of Wonga since the summer of 2014, stated that:

“We said Wonga would be smaller and less profitable in the near term as we focus on creating a sustainable business that lends responsibly and transparently to customers who can afford to borrow from us.

We know it will take time to repair our reputation and gain an accepted place in the financial services industry.”

Wonga also stated that it had faced 12% rises in their operating costs, due to the new strict regulations that are being imposed upon them by the FCA (Financial Conduct Authority).

Many payday lenders are predicted to be exiting the market as a result of these rising operating costs.

The new regulations include measures that prevent lenders from trying to claim money for a customer’s bank account more than two times.  They also require much more stringent checks on customers; to make sure that they are likely to be in a position to be able to repay their debts.

What does the future hold?

Wonga has stated that it expects to see losses again in 2015, although it claims that it will be launching a new range of products and loans in 2016.

The chairman stated that the company need to diversify what it has to offer.  As opposed to  “the almost exclusive reliance on one product and one price”.

They have also begun to undertake cost cutting measures, meaning that they have cut their staff by around 325.  This number represents a third of all their staff.

Mr Haste stated that he believed the company still offers a service that can be of value to UK customers but with the requirement of added responsibility:
“But only if they put their customers first and lend responsibly. Regrettably, that has not always been the case at Wonga,”

Wonga has been accused of attempting to influence children, by making them overly familiar with the idea of a payday loan.

In reaction to this they have cancelled a recent string of adverts that featured a group of elderly puppets.  They have also agreed to remove their logo from Newcastle United FC’s children’s shirts – they have a sponsorship deal with the Tyneside football club.

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