Wonga profits halved in wake of compensation costs and crackdown

Wonga, the UK's largest quick credit provider, has reported a 53 per cent fall in full-year pre-tax profits as regulators continue to clampdown on payday lenders.

The lender, whose controversial four-figure interest rates have drawn criticism, said its pre-tax profits were £39.7m in 2013, down from £84.5m in 2012.

An exceptional charge of £18.8m resulted from "remediation costs" after the lender was forced to compensate more than 45,000 customers who received debt collection orders from fictitious law firms.

Cautioning that the business would be "smaller and less profitable in the near term" the company said that continued investment in its international business was another "key factor" in the profits slump.

The privately-owned company, which has previously counted the Church of England among its investor base, loaned its customers £1.3bn in 2013, up 8 per cent on the previous year. Wonga reported a 2 per cent annual rise in revenues to £315m.

The performance was in stark contrast to the company's previous set of results, where pre-tax profits rose by more than a third, and the amount it lent out grew 68 per cent year-on-year.

The latest setback for Wonga comes after a torrid six months, during which the lender has been hit with a bill for compensation payments and a string of high profile departures. Wonga's co-founder Errol Damelin stepped down from the board as chairman in July, after quitting his role as chief executive the previous November. In another blow, Niall Wass, his replacement as chief executive, left the company only six months later.

Andy Haste, the former chief executive of insurance group RSA, took over as chairman of Wonga in June, tasked with cleaning up the lender's tarnished reputation.

Pressure is mounting on Wonga and other payday lenders after stringent rules governing short-term credit providers came into force in July. The Financial Conduct Authority's regime is designed to clamp down on "the cycle of debt", weeding out parts of the industry that load excessive charges on to borrowers who have little chance of repaying.

Under the new rules, credit providers cannot roll over loans more than twice - a common practice where loans are extended and fees imposed if a customer cannot repay. The watchdog also limited the ability of payday lenders to enter customers' bank accounts to reclaim missed payments, and proposed a cap so interest and fees do not exceed 0.8 per cent per day of the amount borrowed.

More than a quarter of lenders are estimated to be forced out of business as a result of the watchdog's new rules.

Complaints against payday lenders have more than doubled in the past two years, with many borrowers citing "aggressive" debt collection practices, according to a report by the Financial Ombudsman. Nearly 800 new complaints were filed against payday lenders in the past financial year, compared with 296 the previous year.

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