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Wonga, one of Britain’s best known payday lenders, has been making headlines today after it unveiled a dramatic cost-cutting plan that will see more than 300 jobs axed in an attempt to save £25 million.
The move shows the impact of action taken by regulators to clean up an industry that has been accused of deepening the financial woes of struggling households through the exorbitant interest it charges. A number of payday lenders have already shut up shop after the Financial Conduct Authority tightened consumer credit rules last year and more are being squeezed by a cap on the sector, which means borrowers never pay back more in interest and fees than they initially borrowed.
Further reforms confirmed by the competition watchdog today will place yet more demands on the sector, including requiring firms to list the total amount payable on loans on a price comparison website overseen by regulators.
Wonga said it will have to become smaller and less profitable in the near-term as a result but expects to survive the upheaval.
Others, however, may not be so lucky. The FCA has said that its cap could wipe out nearly all of the UK’s payday lenders, leaving just a handful standing.
Industry experts have said that could push some providers into riskier areas of credit or see more illegal loans pop up, but many are hoping banks and traditional credit providers will step into the gap instead.
While the full effect of the payday industry overhaul is yet to be seen, it does at least seem certain that there is massive change afoot.Reuse content