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Payday Lender Wonga Pre-Tax Profit Drops 53%

(c) Sky News 2014

Wonga's annual profit has dropped by 53%, after the payday lender came under fire for the tactics it uses to reclaim money from borrowers in default.

It said full-year pre-tax profit in the 12 months to 31 December were £39.7m, down from £84.5m a year earlier.

The firm said the decline in profit was driven by "remediation costs related to historic debt collection and systems issues", along with investment and international expansion.

The company now expects to see lower profits in the future.

It said in a statement: "With the group investing to ensure it builds a sustainable business in the future, the expectation is that Wonga will be smaller and less profitable in the near-term."

Sky News City Editor Mark Kleinman revealed last week that Wonga would see a large plunge in profits.

The period covered by Wonga's results pre-dates the scandal triggered earlier this summer when it emerged that the company had invented a number of law firms in order to pursue customers for unpaid debts.

The episode prompted Wonga to agree with financial regulators to pay at least £2.6m to compensate 45,000 customers for sending them letters from non-existent firms such as Barker and Lowe and Chainey, D’Amato and Shannon.

Wonga's accounts include an £18.8m provision for remedial action over its previous debt collection tactics.

If it did not set aside such a large figure the annual profit drop would have been recorded at 30%.

The company has also sought to overhaul its UK operations in the wake of the controversy.

The payday loan sector has come under fire from politicians, consumer groups and and even the Archbishop of Canterbury over interest rates charged, which can reach four-figure sums.