Changing bosses won’t improve a payday lender’s reputation as they continue to be caught treating borrowers badly
You may have noticed that Britain’s most profitable payday lender Wonga announced a new chairman this week. He’s a former insurance chief who hopes to revive the firm’s reputation.
It can be no coincidence that the news of his appointment came a day before payday lenders were warned that the City watchdog’s new cap on the cost of credit would hit their profitability.
Wonga’s owners are private equity investors who plan to turn their investment in the firm into a decent profit. As such they will take the high-cost credit company to the stock market when the time is right. And by that I mean, when they can turn the most profit.
They’ve told me in the past that they have no particular time-frame in mind. While the business has been growing exponentially as more hard-up people turn to short-term credit to get by, they’ve been able to sit back and anticipate a more-than-decent return in due course.
Yet alarm bells must have been ringing this month as the watchdog introduced tough new rules that cut the amount of profit the company can make, particularly through rolling loans over month after month.
And the owners must have been aghast at the storm of protest that erupted over the news late last month that Wonga had been sending vulnerable and frightened borrowers threatening letters from made-up lawyers.
They’re presumably hoping that parachuting in a respected City name will persuade us that the company deserves another chance. Try telling that to struggling people forced onto a spiral of disastrous debt after being persuaded to take out a payday loan.
And it’s not just Wonga that should be quaking at the City Watchdog’s tough new stance. Rival high street payday lender the Money Shop was this week forced to refund £700,000 of interest and default charges to 6,247 customers who took out unaffordable loans.
I trust the watchdog will deliver further censures to lenders it catches breaking the rules.Tagged in: APR, high-cost credit, loans, money shop, payday lender, wonga
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