Thursday 19 October 2017

Pay day loan firm Wonga's CEO dismisses criticism as profit jumps

Wonga has reported a year of surging profits as its number of cash-strapped customers swelled to more than one million
Wonga has reported a year of surging profits as its number of cash-strapped customers swelled to more than one million

Wonga's chief executive said he doubted the Anglican Church would be able to put his company out of business as the loan provider posted a 36pc jump in full year profit.

Archbishop of Canterbury Justin Welby said in July that Wonga took advantage of poor households struggling to get by in austerity conditions, and pledged to drive the "morally wrong" company out of existence by launching the church's own not-for-profit credit unions as an alternative for Wonga's customers.

On Tuesday Errol Damelin, chief executive and founder of Wonga, described the challenge as "complimentary" and said he doubted it would have an impact on Wonga's business.

"In the UK on the consumer side, we reject about two thirds of applicants we get. The market that the Church would be looking at, we think, is mostly the market for people who don't get accepted for Wonga loans," Damelin said.

"One hasn't seen digital organisations anywhere else in the world being competed out by people who don't make it their core business," he added.

Wonga reported net profit after tax of £62.5m in 2012, benefiting from a surge in applications. The market for so-called payday loans has grown rapidly in Britain and countries like the United States as benefit cuts squeeze poor households' budgets and banks cut back on credit in the aftermath of the 2008 financial crisis.

Wonga offers loans of up to £1,000. In 2012, it provided 4 million loans and lent £1.2bn, up 68pc on the year before. Revenue rose by 67pc to £309m.

Criticism of payday firms has grown, with politicians and poverty-focused charities concerned that the high interest rates the firms charge only get poor households into more trouble.

Damelin, who earns a salary of £757,000 according to figures released today, said Wonga provided small, short-term loans in a "transparent, flexible and responsible way."

"It's very unlikely that a £400 loan or a £200 loan is what gets somebody into a financial mess," he said.

He welcomed plans for tighter regulation of the industry, even though it may prove costly for the loan providers and said there should be a wider review of short-term credit including bank overdrafts and store and credit cards.

"We need to be mindful with regulation... but clearly there's a lot that's wrong in how the other parts of the industry operate and I think being able to distinguish between good and bad operators would be a really useful thing for customers," he said.

Britain's consumer watchdog, the Office of Fair Trading, ordered a review into payday lenders after finding deep-rooted problems in the way the industry treats consumers. The Competition Commission will conduct the review and lawmakers have called for a cap to be set on the amount of interest charged.

Reuters

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