Controversial payday lender Wonga earned profits of more than £1m a week last year as surging numbers of cash-strapped Britons turned to its high-interest loans.
The company, which charges households annual interest rates of more than 5,800%, said profits after tax rose by 36% to £2.5m in 2012.
Lending was up 68% in the year to £1.2bn, while customer numbers ballooned 61% to more than a million amid the ongoing squeeze on household finances and banks’ retreat from riskier lending.
The online lender was engulfed in a storm of controversy recently when the Archbishop of Canterbury said he wanted the Church of England to “compete” it out of existence by backing credit unions.
Wonga typically lends sums of about £200 to £400 to consumers, repaid over a few weeks. It has also started offering loans of up to £30,000 to credit-starved small businesses, repayable over a year.
The company, which is owned by private equity and management, came under fire for boosting profits at the expense of struggling consumers.
Gillian Guy, chief executive of charity Citizens Advice, said: “Payday lenders’ profits come directly from the pockets of consumers, many of whom turn to them out of desperation rather than choice. The payday loans industry must focus on boosting customer welfare, rather than boosting profits at the expense of hard-pressed householders.”
Founder and chief executive Errol Damelin insisted the online lender operates in an “upfront and transparent” way, adding it rejects two-thirds of applications.
Wonga said it earns an average profit of £15 per loan, or 5p of profit on every £1 it lends. It did not pay a dividend but reinvested profits back into its development.
He said Wonga’s customers tend to be digital-savvy, young, single and employed, and insisted the company’s profit margins are “not outrageous in any way to us”.
The payday lending industry, worth £2bn, was referred in June for a full-blown investigation by the Competition Commission after the trading watchdog uncovered “deep-rooted” problems.
The Office of Fair Trading made the referral because it continues to suspect that features of the market “prevent, restrict or distort competition”.
Stella Creasy, the Labour MP who has criticised Wonga in the past, said: “The fact that Wonga is able to make more than £1m a week in an industry which has widespread malpractices should be of great concern to all of us in Britain.”