Wonga Sees Profits More Than Halve

Profits at payday lender Wonga have fallen by more than half, the company has announced.

In the year to the end of December 2013, profits fell by 53% to £39.7m.

The company blamed “remediation costs” – money it had to pay back to customers as a result of its own mistakes.

Wonga also say that they expect to be “smaller and less profitable” in future, in part due to new controls set by the regulator, the Financial Conduct Authority (FCA).

Since July 2014, all payday loan companies have had to conform to new rules, which limit roll-overs of loans and force them to increase affordability checks. From January 2015, they will also have their charges capped.

In June this year, the FCA ordered Wonga to pay £2.6m in compensation to 45,000 customers, after fake letters were sent out from non-existent law firms.

At the same time Wonga was told to compensate 200,000 customers who were overcharged, as the result of a technical issue.

In total costing the company £18.8m.

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Economic Recovery Comes With Cash Flow Woes For Some

The number of businesses just paying the interest on their debts – a key characteristic of ‘Zombie businesses’ – has jumped from 103,000 in November 2013 to 154,000 now, according to research by insolvency trade body R3. This is at its highest level for eighteen months.

But rather than a return of the ‘zombie business’ phenomenon, insolvency practitioners suspect that late payment and over-trading problems associated with economic recovery are behind the rise.

‘Zombie Businesses’ emerged after the 2009 recession when thousands of businesses that might have been expected to fail were kept afloat by a combination of low interest rates, lenient creditors, and a sluggish recovery.

100,000 businesses say they would not be able to pay their debts if there was a small rise in interest rates, while 64,000 say they struggle to pay their debts when they fall due.

‘Zombie business’ numbers peaked at 160,000 in November 2012 before falling back to 102,000 in August 2013.

Source: creditman.co.uk