Wonga payday loan company reported an increase for 2012. This company has faced criticism because of the high interest rates they charge to their consumers. However, Wonga netted £62.5m last year.
The market for so-called payday loans has grown rapidly in Britain and other countries like the United States as benefit cuts squeeze poor households’ budgets and traditional bank credit lines wither in the aftermath of the 2008 financial crisis.
Public criticism of the firms in Britain has grown too, with politicians and poverty-focused charities concerned that the high interest rates the firms charge only get poor households into more trouble.
The founder, Errol Damelin of Wonga indicated that their short term loans are transparent. Erroll Damelin defended the companies practices. He encourages plans for tighter regulation of the industry. “We’ve always been a strong advocate of better regulation and measures that seek to protect consumers and eradicate unscrupulous practices used by some operations,” he said.
The Office of Fair Trading is requesting a review into lenders who offer payday loans. There have been issues with how the industry treats its clients. There will be a review conducted by the Competition Commission and government. They have called for a cap on the interest rate.
According to Damelin, there should be a thorough review of short-term lending including bank overdrafts and credit cards.
The Financial Conduct Authority (FCA), plans to take over regulation of the lenders in April. FCA vowed in June to start cracking down on the payday loan industry. They were investigating measures like an advertising ban.