Controversial payday lender Wonga will become “smaller and less profitable” after new chairman Andy Haste vowed to clean up the company’s act and make sure it only offers loans to customers who can afford them.
Haste, the former chief executive of insurance group RSA, conceded that the firm would shrink as it tightens up its lending criteria and regulators prepare to impose a cap on the interest rates the industry can charge, but said the payday loan sector “needs to go through significant change if it’s to have a sustainable future”. He also revealed that the puppet pensioners used in Wonga’s advertising campaigns have been scrapped.
His appointment, which took immediate effect yesterday, came as the FCA said that smaller rival Dollar, which trades as The Money Shop, would be refunding more than £700,000 of interest and default charges to 6,247 customers who received loans that exceeded the firm’s own lending criteria.
Wonga, the UK’s largest payday lender, last month agreed to pay more than £2.6 million in compensation to about 45,000 customers after sending them letters from non-existent law firms threatening legal action. However, the group escaped a fine because the “very serious” misconduct took place before the Financial Conduct Authority (FCA) assumed responsibility for the consumer credit market.
Heart of Midlothian Football Club recently decided not to renew its shirt-sponsorship ties with the company, but Wonga said yesterday that it remained a “proud” backer of Newcastle United.
Haste, credited with turning More Than parent RSA around before he left in 2011, will be paid a salary of £500,000, reducing to £300,000 after 18 months as his role becomes less hands on. Previous chairman Errol Damelin, who co-founded Wonga in 2006, left the board last month, just weeks after Niall Wass announced he was stepping down as chief executive after just six months.
Unveiling a number of key priorities, including greater transparency and a tightening of its lending criteria, Haste said he was seeking to repair the firm’s reputation. Scrapping its puppet mascots, introduced about three years ago, would reduce the risk of “inadvertently attracting the very young or vulnerable,” he added.
Consumer finance expert Martin Lewis last year called on the FCA to ban payday lenders from advertising on children’s television channels. Giving evidence to the Commons business, innovation and skills select committee, he argued that “kids are being dazzled by catchy tunes and cute puppets”.
Haste, who is also deputy chairman on the council of the Lloyd’s of London insurance market, said: “We will become a more customer focused, and inevitably in the near term, a smaller and less profitable business.
“However, we are determined to make the necessary changes and serve our customers in the right way, to repair our reputation and become a business with a long-term future and an accepted place in the financial services industry.”
Wonga board member Laurel Bowden, a partner at investor Greylock IL, said: “We share a commitment to be the most responsible provider of short-term credit. Andy has an exceptional track record and brings with him a wealth of relevant experience.”
Haste was lauded for overseeing a quadrupling in RSA’s value during his eight-year tenure, but the group has since been rocked by an accounting scandal in Ireland that pushed it into the red last year and led to the resignation of his successor, Simon Lee. The insurer is now led by former Royal Bank of Scotland boss Stephen Hester.