The days of cute puppets and runaway profits at Wonga appear to be over. According to Sky News, the payday lender is on the verge of revealing a £35m loss for 2014, as it bends to the ever stricter requirements of the Financial Conduct Authority (FCA).
Presuming Sky’s sources are on the money, this puts Wonga on the wrong end of a pretty steep decline. Last year, it made a £39m profit; the year before, it was £84.5m. The loss follows a series of reforms over the last year, designed to make Wonga more palatable to the FCA, which took over as the industry regulator last April.
In order to get approval for an FCA license to continue trading, Wonga has already taken its adverts off air, introduced a three-day grace period before applying a default fee and halved the time after a default that it charges interest. It then forgave £220m of debt from customers unlikely to be able to pay it back, and set aside around £20m for fines and compensation claims from its fake legal letter scandal.
That may be too little, too late, however. The stringent new regulations are widely expected to decimate the industry, with many lenders not even bothering to apply to the FCA for a continued license to trade. There simply won’t be as much business going round, and the margins won’t be as good.
This isn’t to say Wonga will disappear altogether, presuming the FCA accepts its measures as being sufficiently far-reaching. But it does mean it’s likely to be smaller. A couple of months ago, Wonga halved its UK-focused workforce and sold its business loan brand Everline to Orange Money.
Wonga’s chairman Andy Haste will surely hope that all this is a one-off hit, and that it will return to profit once the FCA backs off. A line in the Labour Party manifesto might be worrying him right now, however.
‘We will deal with the scourge of household debt by introducing a new levy on payday lenders’, Miliband et al said, before immediately making it worse by saying these funds would be used to boost ‘low-cost alternatives like credit unions’. Just what Wonga doesn’t need.