Wonga to axe a third of staff just weeks after financial watchdog forced the payday loan firm to cap interest at 100%, Wonga announced today it would make a third of its total workforce redundant after it was forced to cap its interest rates on payday loans.
The lender will shed 325 jobs after the Financial Conduct Authority said the interest they could charge for loans would be a maximum 100 per cent of its total cost from January 2.
Previously businesses like Wonga, Quickquid and the Moneyshop would lend small amounts of around £50 to £3,000 for short periods of time at rates which could run up to 6,000 per cent a year.
A typical Wonga loan used to be £150 lent over 18 days and a customer would then pay back £183.49 including interest and charges at an APR of 5,853 per cent.
The FCA said a cap was needed to better regulate the industry, but experts have said that the new cap could sink the industry completely.
In a series of New Year clampdowns the FCA decided that payday lenders are also no longer allowed to roll over a loan more than twice and they can make only two unsuccessful attempts to claw money back out of a borrower's account.
And default fees have been capped at £15 pounds rather than the average £40 paid now.
It came as another watchdog decided that all payday lenders will be ordered to put their deals on comparison websites in a move that could save Britain's 1.8million customers at least £60 a year.
The Competition and Markets Authority (CMA) has said that a lack of price competition between lenders has led to higher costs for borrowers in yet another clampdown on the industry.
Wonga said today the job cuts were necessary and hundreds will be told if they are redundant after a 30 day consultation period.
The move will save around £25million over the next two years.
Chairman Andy Haste said Wonga will become smaller and less profitable in the near term as it introduces changes to make sure it lends 'fairly and responsibly'.
He said: 'Wonga can no longer sustain its high cost base which must be significantly reduced to reflect our evolving business and market. Regrettably, this means we've had to take tough but necessary decisions about the size of our workforce'.
It is expected a phased reduction in jobs will mainly affect teams that support the UK business from London, Dublin, Cape Town and Tel Aviv, eventually leaving Wonga with a UK-related workforce of around 325 people.
The remaining roles are expected to be based in London and Cape Town, with plans to close the Tel Aviv office by mid-2015 and the Dublin office by mid-2016.
Last month there was uproar when Wonga escaped prosecution for sending out fake legal letters designed to put pressure on customers who were behind on their loans.
The City of London police announced that Britain's biggest payday lender would not face criminal charges over the scandal, despite admitting it was in the wrong.
Last June, the City watchdog announced that Wonga had agreed to pay £2.6 million in compensation for the letters which it sent to 45,000 struggling borrowers from non-existent law firms.
At the time, the firm was blasted by consumer groups and MPs, who demanded to know why the company and its executives were not being fined or prosecuted over the harassment.
Subsequently, the City of London police agreed to look into the case, however the force said there was insufficient evidence to take action.
Wonga also promised to compensate all the thousands of victims, but large numbers are still to be paid.
Meanwhile the Competition and Markets Authority (CMA) demanded at least one payday lender comparison following a 20-month investigation into the payday lending market,
They say it is essential so consumers can better understand interest rates, late fees and other charges.
The watchdog, which has been talking to price comparison websites about the issue, said it believes that at least one website, and possibly more, will emerge which people can use to compare the cost of a payday loan.
If this does not happen, lenders will be obliged to set up a price comparison website which is authorised by regulator the Financial Conduct Authority (FCA).
The CMA's report, released today, said that while comparison websites uSwitch and MoneySuperMarket ruled themselves out of opening a new sites, others may be willing.
Gocompare said it would consider launching a payday loans comparison service on its website, as would Comparethemarket.com and Confused.com.
The CMA has estimated that the UK's 1.8 million payday loan customers could typically be up to £60 a year better off if it was easier for them to shop around.
The FCA also told the CMA that it had had approaches from websites which were interested in operating an authorised payday loan price comparison website.
An average of 880,000 households a month took out a payday loan last year, according to research from consumer group Which?
Which? executive director Richard Lloyd said: 'The payday lending market has been rife with poor practice but today's proposals, alongside the Financial Conduct Authority's price cap and tougher supervision, are a step in the right direction to make lenders start to compete on price and treat customers fairly.
'We now want to see the regulators turning their attention to unfair practices and excessive fees in the wider credit market, including unauthorised overdrafts.'
The lender will shed 325 jobs after the Financial Conduct Authority said the interest they could charge for loans would be a maximum 100 per cent of its total cost from January 2.
Previously businesses like Wonga, Quickquid and the Moneyshop would lend small amounts of around £50 to £3,000 for short periods of time at rates which could run up to 6,000 per cent a year.
A typical Wonga loan used to be £150 lent over 18 days and a customer would then pay back £183.49 including interest and charges at an APR of 5,853 per cent.
The FCA said a cap was needed to better regulate the industry, but experts have said that the new cap could sink the industry completely.
In a series of New Year clampdowns the FCA decided that payday lenders are also no longer allowed to roll over a loan more than twice and they can make only two unsuccessful attempts to claw money back out of a borrower's account.
And default fees have been capped at £15 pounds rather than the average £40 paid now.
It came as another watchdog decided that all payday lenders will be ordered to put their deals on comparison websites in a move that could save Britain's 1.8million customers at least £60 a year.
The Competition and Markets Authority (CMA) has said that a lack of price competition between lenders has led to higher costs for borrowers in yet another clampdown on the industry.
Wonga said today the job cuts were necessary and hundreds will be told if they are redundant after a 30 day consultation period.
The move will save around £25million over the next two years.
Chairman Andy Haste said Wonga will become smaller and less profitable in the near term as it introduces changes to make sure it lends 'fairly and responsibly'.
He said: 'Wonga can no longer sustain its high cost base which must be significantly reduced to reflect our evolving business and market. Regrettably, this means we've had to take tough but necessary decisions about the size of our workforce'.
It is expected a phased reduction in jobs will mainly affect teams that support the UK business from London, Dublin, Cape Town and Tel Aviv, eventually leaving Wonga with a UK-related workforce of around 325 people.
The remaining roles are expected to be based in London and Cape Town, with plans to close the Tel Aviv office by mid-2015 and the Dublin office by mid-2016.
Last month there was uproar when Wonga escaped prosecution for sending out fake legal letters designed to put pressure on customers who were behind on their loans.
The City of London police announced that Britain's biggest payday lender would not face criminal charges over the scandal, despite admitting it was in the wrong.
Last June, the City watchdog announced that Wonga had agreed to pay £2.6 million in compensation for the letters which it sent to 45,000 struggling borrowers from non-existent law firms.
At the time, the firm was blasted by consumer groups and MPs, who demanded to know why the company and its executives were not being fined or prosecuted over the harassment.
Subsequently, the City of London police agreed to look into the case, however the force said there was insufficient evidence to take action.
Wonga also promised to compensate all the thousands of victims, but large numbers are still to be paid.
Meanwhile the Competition and Markets Authority (CMA) demanded at least one payday lender comparison following a 20-month investigation into the payday lending market,
They say it is essential so consumers can better understand interest rates, late fees and other charges.
The watchdog, which has been talking to price comparison websites about the issue, said it believes that at least one website, and possibly more, will emerge which people can use to compare the cost of a payday loan.
If this does not happen, lenders will be obliged to set up a price comparison website which is authorised by regulator the Financial Conduct Authority (FCA).
The CMA's report, released today, said that while comparison websites uSwitch and MoneySuperMarket ruled themselves out of opening a new sites, others may be willing.
Gocompare said it would consider launching a payday loans comparison service on its website, as would Comparethemarket.com and Confused.com.
The CMA has estimated that the UK's 1.8 million payday loan customers could typically be up to £60 a year better off if it was easier for them to shop around.
The FCA also told the CMA that it had had approaches from websites which were interested in operating an authorised payday loan price comparison website.
An average of 880,000 households a month took out a payday loan last year, according to research from consumer group Which?
Which? executive director Richard Lloyd said: 'The payday lending market has been rife with poor practice but today's proposals, alongside the Financial Conduct Authority's price cap and tougher supervision, are a step in the right direction to make lenders start to compete on price and treat customers fairly.
'We now want to see the regulators turning their attention to unfair practices and excessive fees in the wider credit market, including unauthorised overdrafts.'
