Britain’s biggest payday loans company, Wonga, has cut the cost of borrowing to bring it into line with new rules – but is still able to charge an annualised interest rate of 1,509%.
In response to a clampdown on the sector unveiled in November, Wonga has reduced the rate of interest it charges, and axed one fee and trimmed another. Despite this, the lender will in many cases be charging the maximum amount it is allowed to under the new regime taking effect on 2 January.
The Financial Conduct Authority said that from that date, interest and fees would be capped at 0.8% per day of the amount borrowed, while default charges must not exceed £15. In addition, the total cost of fees and interest would be capped to 100% of the original sum borrowed.
In response, Wonga has reduced its daily cost from 1% to 0.8%, and cut its missed payment fee from £20 to £15. A £5.50 “transmission fee” has been removed. At the same time, the minimum amount customers can borrow has been increased from £1 to £50.
The changes, applying to new loans taken out from 16 December, mean Wonga’s quoted representative annual percentage rate has fallen from 5,853% to 1,509%.
The FCA previously said the price caps meant someone taking out a £100 loan for 30 days and paying it back on time would not pay more than £24 in fees and charges. Wonga confirmed that in this scenario, the total cost to one of its customers would be £24 – down from £37.15 before.
In recent months Wonga has come under fire for its business model and became emboiled in a scandal involving fake legal letters designed to pressure borrowers to pay back loans.
The company said it had made other changes this year, including strengthening its lending criteria to ensure it only lent money to customers who could afford to repay their loans, and pulling its controversial puppet TV adverts.
Tara Kneafsey, Wonga UK’s chief executive, said: “We’re pleased to offer our customers a cap-compliant product ahead of the FCA’s January deadline.”
