BRITAIN’S £2 billion payday loan industry will fall under the spotlight this week when one of its biggest players unveils bumper figures.
Wonga – known for its quirky advertisements featuring animated elderly characters and its sponsorship of Hearts and Newcastle United football clubs – will be under pressure to defend its high interest rates and lending practices.
It is one of three firms that dominate the sector, alongside Cash America, owner of the Pounds to Pocket and QuickQuid brands, and Dollar Financial Corporation, which is behind The Money Shop and PaydayUK. Between them, the trio have an estimated 70 per cent share of the market by turnover.
Wonga has already gone head-to-head with the Archbishop of Canterbury after Justin Welby told the company the Church of England wants to “compete” it out of existence as part of plans to expand credit unions.
The Competition Commission is conducting an inquiry into the sector after the Office of Fair Trading revealed that features of the market had the potential to “prevent, restrict or distort competition”.
The watchdog raised fears that vulnerable consumers who cannot afford to pay their loans back on time were finding themselves trapped with one firm when their loans are rolled over. Officials are also worried that firms are emphasising the speed of the loan over cost.
Wonga, which offers short-term loans of up to £1,000, maintains it is a “pioneer of better regulation” in the industry and has welcomed the competition probe.
The group’s financial results for 2012 are likely to fuel the controversy though.
In 2011, Wonga’s pre-tax profits more than tripled to £45.8 million, while the number of loans that the company made almost quadrupled to 2.5 million, meaning it had provided more than six million loans since its launch in 2007.
The growth of those numbers is expected to have accelerated in the past year.
Payday lenders will also come under the scope of the Financial Conduct Authority from April, and its powers could enable it to ban advertising, place a possible cap on interest rates and limit or bar the number of rollovers that lenders can offer, if it sees fit.