By Clare Hutchison and Matt Scuffham, Reuters
LONDON — Short-term loan provider Wonga on Tuesday reported a 36-percent rise in 2012 profit, benefiting from a surge in applications by cash-strapped Britons — many of whom have had difficulty obtaining credit from mainstream banks. Wonga, which has faced criticism from the head of the Church of England over its high interest charges, said it made a net profit after tax of 62.5 million pounds (US$97.3 million) in 2012, with revenue rising by 67 percent to 309 million pounds. Wonga offers loans of up to 1,000 pounds and charges an annual interest rate of 5,853 percent. In 2012, it provided 4 million loans and lent 1.2 billion pounds, up 68 percent on the year before. The market for so-called payday loans has grown rapidly in Britain and other countries like the United States as benefit cuts squeeze poor households’ budgets and traditional bank credit lines wither in the aftermath of the 2008 financial crisis. Public criticism of the firms in Britain has grown too, with politicians and poverty-focused charities concerned that the high interest rates the firms charge only get poor households into more trouble.
But the company’s chief executive and founder Errol Damelin defended its practices, saying it provided small, short-term loans in a “transparent, flexible and responsible way.” He also welcomed plans for tighter regulation of the industry.
“We’ve always been a strong advocate of better regulation and measures that seek to protect consumers and eradicate unscrupulous practices used by some operations,” 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.
Damelin said there should be a wider review of short-term credit including bank overdrafts and store and credit cards. The Financial Conduct Authority, which will take over regulation of the lenders next April, in June vowed to crackdown on the industry and said it was investigating measures like an advertising ban.