CHURCH of Scotland leaders today expressed concern over the antics of “legal loan sharks” after pay day lender Wonga’s profits rocketed to more than £1 million a week.
The Kirk called again for loan rates to be capped following the firm announcing a 36 per cent increase in profits to £62.5m last year.
The industry is being investigated by the Competition Commission after the Office of Fair Trading uncovered “deep-rooted” problems.
Wonga, which charges rates of more than 5,800 per cent, said its total number of lenders soared by 61 per cent to more than 1m on the back of the ongoing squeeze on household finances and banks cutting back on riskier lending.
Its total lending also increased by 68 per cent to £1.2 billion.
Wonga typically lends sums of about £200 to £400 to consumers, repaid over a few weeks.
Trade union Unite branded it “vulture capitalism”, saying the sector “preys on the financially vulnerable”.
A Kirk spokeswoman said: “What is the human reality of those profits? How many people are on their third or fourth loans, paying astronomical interest or driven to other debt or food banks.
“Wonga should state their interest rate - the real rate - on every advert.
“We are calling on the [UK} Government to use the powers it already has to cap interest rates so this loop-hoop that lets legal loan sharks like Wonga survive is closed forever.”
The Archbishop of Canterbury has said he wanted the Church of England to “compete” Wonga out of existence by backing credit unions.
However, the online lender said it doubted whether churches would be able to take it on.
Wonga founder and chief executive Errol Damelin said: “Credit unions in the UK have so far not been successful at getting to scale.
“It’s difficult to imagine a sub-scale organisation bring able to deliver these services.
“The market the Church would be looking at, we think, is mostly the market for people who don’t get accepted for Wonga loans,”
The Church of England is working with the Church of Scotland to establish a churches mutual credit union as an alternative to such firms.
The Church, which did not respond to Wonga’s comments, said the detailed work involved meant this would not be established until autumn next year at the earliest.
Mr Damelin also insisted Wonga operated in an “upfront and transparent” way, and said it rejected two-thirds of applications.
He said: “This is not about people on breadlines being desperate and us being a lender of last resort.”
Wonga said it earned an average profit of £15 per loan, or 5p of profit on every £1 it lends.
Mr Damelin said Wonga’s customers tend to be digital-savvy, young, single and employed, rather than those on benefits, and insisted the company’s profit margins are “not outrageous in any way to us”.
Wonga said the annual percentage rate measure did not represent its true cost to consumers as loans were repaid much sooner, and it froze interest when customers were 60 days in arrears.
In June, Wonga, which sponsors Hearts, paid this season’s money in full ahead of schedule to help the ailing club.
The UK Government’s department of business, innovation and skills said it had not ruled out capping interest rates.
However, it said at present this was “not the way to address consumer detriment in the short-term credit markets” because it could cut people’s access to credit, prompt lenders to introduce extra fees and charges, and reduce competition.
Lothian Labour MSP Kezia Dugdale said: “Underneath the staggering profits of Wonga and other legal loan sharks are thousands of Scots caught in a trap of debt which cannot be allowed to grow bigger.
“The issue of debt is devolved, so there is plenty the Scottish Government can do to support struggling families, including changing the law to improve debt services.
“Twice they have rejected my calls to instigate ‘wealth warning’ campaigns - similar to advertising the dangers of smoking or drinking - to warn of the dangers of payday loan companies.
“They’ve rejected these calls and have even said payday loans were ‘legal, fair, and transparent’, which is very clearly not the case.
“I’d also like to see the SNP do more to support credit unions to develop alternatives to payday loans that are affordable and accessible. By promoting these sources of credit, we can help prevent payday loan companies from making money from the financial misery of Scots.”