It may have been through the mill in recent weeks, but Wonga has every reason to be optimistic about its future with new chairman Andy Haste as the helm.
The new chairman of Wonga, currently the UK’s largest payday lender, has set himself the tough task of reviving the firm’s reputation and regaining the trust of its customers. And something you won’t hear from a business leader everyday, he’s even willing to accept a drop in profits to achieve it.
Speaking of the recent controversy surrounding Wonga’s historical debt collection activities, Andy Haste said: “Some serious mistakes have been made. The company admitted those mistakes and it has apologised for those mistakes.
“We need to repair our reputation and regain our right to be an accepted part of the financial services sector. To do this we will become a more customer focused, and inevitably in the near term, a smaller and less profitable business.”
Out with the old…
The first emblem of old Wonga to be banished under the watch of Haste is the geriatric puppets that have fronted the company’s television advertising campaign for the last few years. Haste believes the adverts could be perceived to trivialise debt, while also appealing to children.
There is also due to be a review of the firm’s current customer base and product range to ensure Wonga only lends to borrowers who can reasonably afford a loan. The payday lender has made a commitment to operating in a responsible and transparent manner which will inevitably lead to a tightening of the firm’s lending criteria. It will also introduce a new culture, in which the fair treatment of customers is at heart of the company’s operations.
The changing landscape
The new Wonga chairman’s appointment came just a day before the latest Financial Conduct Authority (FCA) crackdown on the industry was announced. The FCA has been responsible for the regulation of the industry since April 2014, when it took the regulatory reigns from the Office of Fair Trading. In this time, the FCA has been quick to stamp its authority on the industry with a number of strict new rules.
The latest FCA announcement centres on proposals to cap the cost of payday loans. Although the proposals are not due to come into force until 2January 2015, they are expected to reduce the revenues of the payday lenders by two fifths, representing a £420million loss to the £1bn industry.
The FCA’s key proposals are as follows:
- An overall cost cap of just 0.8 percent a day – Interest and fees must not exceed 0.8 percent on new loans or loans rolled over after the proposals have come into force. This will lower the cost of loans so that £100 borrowed over a 30 day period will not cost more than £124 to repay.
- Default fees capped at £15 – This cap is intended to protect borrowers struggling to repay their loans and help them avoid spiralling debts. If borrowers do not repay their loans within the agreed timeframe, the default fees charged cannot exceed £15. Interest on unpaid balances and default fees must also not exceed 0.8 percent per day.
- Total cost cap of 100 percent – Borrowers will never have to repay more than 100 percent of the value of their original loan. In practice, a £100 loan will never cost more than £200 to repay, irrespective of the timeframe.
Of the cost cap proposals, FCA chief Martin Wheatley, said: “The caps are designed to achieve a balancing point between stopping excesses designed to abuse vulnerable consumers, while still allowing the availability of loans to those who can use them in a mature and responsible way.”
Has the FCA gone far enough with their cost capping proposals? Will these steps help to create a fair market for lenders and borrowers alike? We’d love to hear from you on this contentious issue, so please leave your thoughts in the comments section below.