Payday loan industry crumbling; Wonga cut staff
New recommendations released today by Competition & Markets Authority (CMA) place a question mark over the future of the payday industry.
Soon, all payday lenders will be obligated to publish their rates on at least one price comparison site, and be transparent about penalties and ‘hidden’ fees. The recommendations represent the culmination of a 20-month investigation into the sector by the CMA; they have now been submitted to the Financial Conduct Authority (FCA) for implementation this summer. The CMA believe costs will fall across the sector in response.
Last November, the FCA imposed new rules stating the cost of a payday loan must never exceed twice the amount borrowed, and providers could not charge interest of more than 0.8 per cent daily. Several payday lenders, including Wonga, responded at the time by cutting their rates to the maximum allowed by the regulator.
Simon Polito, chair of the CMA investigation, said the recommendations were designed to ensure that this cap does not “become the benchmark price set by lenders for payday loans”, and “customers are able to take advantage of price competition to further reduce the cost of their loans”.
The recommendations also state that if a comparison site for payday loans is not created independently, payday lenders must establish their own comparison site – in conjunction with the FCA.
Wonga responded to the news by announcing that it will reduce staffing numbers by a third. It said 325 jobs will be cut at a minimum; 100 staff in the UK will be made redundant, former chairman Robin Klein will step down from the company’s board, and two of the firm’s overseas offices, in Dublin and Tel Aviv, will close entirely. The firm aims to make savings of at least £25m in the next two years.
“Wonga can no longer sustain its high cost base which must be significantly reduced to reflect our evolving business and market,” Andy Haste, Wonga’s chairman, said. “We appreciate how difficult this period will be for all of our colleagues and we’ll support them throughout the consultation process.”