Pay day lender posts £62.5m profit

Wonga has announced record profits of £62.5m amid growing controversy surrounding pay day lenders.

The firm lent over £1.2bn last year after a significant rise in money lending in the recession, approving on average more than 10,400 loans a day.

The industry, which is worth around £2bn in the UK, has recently seen an increased spend on advertising as more companies compete in the sector.

Wonga chief executive  Errol Damelin, who received a bonus of £756,000 this year, has defended his business saying it lends responsibly and turns down two thirds of the loans applied for.

He said: “This is not about people on the breadline being desperate.”

However concerns surrounding industry practices have been abundant in the South West with Plymouth City Council rcently announcing it will ban pay day loan websites from advertising on billboards and bus shelters in the city. 

The decision by Plymouth’s Labour-led council is thought to be the first in a trend by local authorities across the country.

Cllr Chris Penberthy, Cabinet member for Co-operatives and Communities said of the move: “Advice agencies in the city are taking calls daily from people who are running up huge debts. We need to protect our residents.

“We have become the first council in the country to ban the advertising of payday loan websites on city centre hoardings and have blocked access to these websites across our computer network.”

Elsewhere in the region, a study by Exeter Citizens Advice found that over 76% of those surveyed in the city felt pressured into extending repayment, while most lenders did not offer to freeze interest rates on the supposedly short-term loans.

Gillian Guy, Chief Executive of nation charity Citizens Advice joined calls for action on pay day lenders. She said:“Consumers need more options, not more adverts from payday lenders. As the squeeze on living standards continues, payday lenders know they have a captive audience of people who need extra cash to tide them over, but aren’t catered for by mainstream lenders.

“The news that advertising spending has been increased even while the Office of Fair Trading and Competition Commission investigate the industry is a slap in the face for consumers who rely on lenders to treat them responsibly."

The commission investigation was set up after the Office of Fair Trading (OFT) found “deep rooted problems” in the industry.

The OFT claimed that advertising by the industry was misleading and irresponsible and had been targeted at young adults, such as university students and soldiers who would be less likely to be financially experienced.

Other issues raised by the OFT include a lack of transparency about where money was being lent from, the substantial interest rates being charged, and the wider effects of promoting the 'buy now-pay later' culture which contributed to the credit crunch.

Despite widening concern for the industry, Parliament rejected a proposed High Cost credit bill in July which would have imposed restrictions and regulations on the way in which the industry operates.

The Government also recently allowed for changes in retail planning which have enabled more pay day lenders to open on the high street.

Though more councils are tipped to bring in bans on pay day lender advertising, the industry is seeing a steady rise in borrowing and bans may do little to prevent people turning to pay day lenders to cope with the recession.

Citizens Advice is running a payday loan tracker survey until the end of November 2013. Payday loan customers can provide their feedback online at: www.adviceguide.org.uk