Payday Lender Wonga To Test 90-Day Loans

The embattled payday lender Wonga is to introduce longer-term loans as it seeks to diversify its business following a string of regulatory fines and restructuring costs.

Sky News has learnt that Wonga will this week begin testing a 90-day loan which allows customers greater flexibility to spread repayments over a longer period.

The product, which will be piloted for several months, is the first extension of the Wonga brand to be unveiled since the company announced in April that it had made a loss of more than £37m last year.

A source said on Wednesday that Wonga would initially limit the availability of the new loans in order to "deliver positive outcomes", adding that only existing customers would be able to apply for them during the trial period.

Customers who take out one of the longer-term loans will do so on the same terms as the existing product, paying interest of 0.8% - or 80p per £100 borrowed - per day.

Strict limits introduced by the City regulator, the Financial Conduct Authority (FCA) have imposed a cap on the amount that payday lenders can charge in interest.

A Wonga spokesman said: "We can confirm that we are planning to launch a pilot of a more flexible, three-month instalment loan to existing customers this week."

Wonga, which has become the target of sustained criticism by opponents of the short-term lending sector, is going through a process of authorisation by the FCA, having been operating under interim licences since last year.

The regulator has estimated that the vast majority of the roughly 400 payday lenders operating in Britain will go out of business following the introduction in January of a price cap on loan and repayment charges.

Analysts have expressed scepticism that Wonga's new management team will be able to resuscitate its brand in the wake of a series of reputation-battering scandals.

Last year, it was forced by the FCA to pay more than £2.5m in compensation to 45,000 customers who were sent letters purporting to be from law firms but which in fact did not exist.

A near-£20m charge to cover the cost of compensation, as well as legal and administrative costs related to the issue, was taken in its annual results for 2014.

More recently, Wonga has announced plans to halve its UK workforce with the loss of 325 jobs.

Explaining the cull, Andy Haste, Wonga's chairman, said: "Our focus is on creating a business that meets the demand for short-term credit sustainably and responsibly, resulting in good customer outcomes.

"However, 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 unclear when the company expects to return to the black, although one source said it was unlikely to be profitable this year.