Controversial payday lender Wonga has fallen into the red, reporting a pre-tax loss of £37.3m last year compared to a profit of £39.7m in 2013, reports The Telegraph.
Wonga said the business had suffered from a significant reduction in UK consumer lending, which lowered revenue to £217.2m from £314.7m the previous year.
Rising operating costs also hit the company’s bottom line, as one-off costs associated with regulatory authorisation charges in the UK landed the business with a £150.2m bill.
Fewer people are also borrowing money from the lender. Wonga made 2.5 million loans in the UK last year compared to 3.7 million in 2013. It loaned money to fewer than 600,000 people 2014, falling from around 1 million the year before.
In October, Wonga said it would take a £35m hit from writing off debts worth £220m from more than 300,000 customers in an attempt to improve its relationship with borrowers and regulators, and this was reflected in this year’s results.
Wonga is also reeling from an order to pay £2.6m in compensation after sending fake legal letters between 2008 and 2010 to 45,000 customers whose payments were overdue.
Wonga is attempting to clean up its image as the payday lending market comes under increased scrutiny form regulators.
Under new rules from The Competition and Markets Authority, payday lenders are being forced to be more transparent. They will have to publish their prices on at least one price comparison website, and be up front about late fees and other hidden charges. They will also be forced to provide borrowers with a clear summary of how much they are borrowing.
The watchdog said that a lack of price competition between lenders meant that most people fail to shop around for a loan to get the best deal.
Last year, the FCA said the cost of a payday loan should never exceed double the amount borrowed, and that lenders could not charge interest of more than 0.8 per cent a day. They must also not charge more than £15 should borrowers default on their loans.
Camden-based Wonga increased employee numbers to 830 in 2014, from 550 in 2013. However, earlier this year it announced plans to cut more than a third of its staff as part of a radcial restructuring of its UK consumer finance operations.
“There is a real need and demand for short-term credit. Having worked in the financial services industry for more than 30 years, it is clear to me that there is an important role in society for such credit providers, but only if they put their customers first and lend responsibly,” said chairman Andy Haste, who joined Wonga in July.