Wage Day sees more workers applying for loans

Wage Day Advance, based in Skipton, said soaring demand from white collar workers and reduced overheads per loan had pushed up margins in 2010. Pre-tax profits rose to £8.5m, up from £3.1m in 2009, with income climbing to £16m from £7.5m.

Dale Chapman, managing director, said the company will take on at least 30 staff this year and also defended the firm after controversy over the industry, when politicians criticised lenders’ high rates of interest. Wage Day provides loans of up to £750 on a short-term basis of up to 40 days at a 25 per cent interest rate.

“People in all walks of life often have a short-term need to borrow money but have become totally disillusioned with the high street banks and the myriad of charges they levy in areas such as unauthorised overdrafts. What we offer is basic, simple to understand and transparent,” Mr Chapman said.

The firm has several hundred thousand customers but says it does not reveal the exact figure as it is commercially sensitive. Its loans vary between £80 and £750 with access to top-end sums restricted to those who have a good repayment record. Customers are typically offered around £200 for a first loan, Mr Chapman said, and the total level of bad debts was under 10 per cent.

Last year, watchdog Consumer Focus said the number of people taking out payday loans had quadrupled over four years and called for more safeguards to protect Britons from high interest rates and spiralling payday loan debts.

Mr Chapman said, however, that a comparison based on his firm’s annual percentage rate (APR) was misleading because its loans are repaid in a shorter timeframe.

“As an industry we continue to get unfairly labelled as rip-off merchants due to the fact that we have to quote an APR figure. On a straightforward interest rate we charge 25 per cent for borrowing for up to 40 days – which I believe is entirely reasonable. However, we have to quote this as an APR of around 1,700 per cent, which is ludicrous. As an industry, if we did not exist, more and more consumers would fall victim to the unregulated and dangerous loan shark industry.”

The firm has seen an increase in the number of white collar customers, he added. If a customer is genuinely struggling to repay the firm can work out a payments plan and freeze further interest payments, until the debt is cleared, and will charge a small handling fee. If Wage Day cannot come to an agreement with the customer then it will charge them daily interest for 30 days.

Wage Day was set up in 2004 as a successor to Mr Chapman’s Cornershop Loans business, which provided cash for six or 12 months and carried out traditional credit checks. The businessman said Wage Day’s interest rate is below that of rivals. It has also created a cheaper alternative to traditional credit checks which it says provides more recent data on customers.

“Over the last four years we have a developed a sophisticated in-house system which analyses all applications and credit scores applicants instantly and tells us whether or not we should lend and how much.”

Up to one in five are successful

Dale Chapman said between 15 and 20 per cent of people applying to Wage Day Advance are successful and the firm has used the data to effectively built up an underwriting system.

It has 100 staff split between customer services, the contacts team, underwriting, collections, administration and IT.

Ownership of the business is shared evenly between Dale Chapman, his father, Paul, and Andrew Hobson.

The firm is self-funding and the “vast majority” of profit in 2010 was re-invested, Mr Chapman said.