A NEW mood of penitence could be detected at Wonga, the payday lenders, this week.

On Tuesday, the company's new chairman, Andy Haste, said: "Some serious mistakes have been made. The company admitted those mistakes, and it has apologised for those mistakes. I know that we need to repair our reputation, and regain our right to be an accepted part of the financial-services sector."

As part of his shake-up, he said that the use of puppets in television advertisements (above) would end. "I am going to be reviewing all of our advertising and marketing, to make sure that we don't leave any impression that we are trying to influence or target the very young or the vulnerable." He said that his reforms would bring about a drop in profits (£60 million in the last financial year).

His statement was made a few hours before the Financial Conduct Authority (FCA) announced its plans to introduce a cap on the amount that payday lenders can charge, to come into force in January 2015. Loan rates should be capped at 0.8 per cent a day of the amount borrowed, it said.

Borrowing £100 would cost a maximum of £124, if paid back within a month. Those who fail to pay back the loan within that time can, in future, be charged no more than 100 per cent of the original sum. There will also be a cap on default charges.

The FCA estimates that payday companies will lose £420 million a year if these changes are introduced, amounting to 42 per cent of their present revenue. In response, the payday industry warned that the changes would force more people to turn to loan sharks.

Wonga has agreed to pay £2.6 million in compensation to customers that it pursued with fake legal letters.

By Paul Handley

THE Church Commissioners announced last Friday that they have successfully extracted themselves from their financial stake in Wonga, the payday lenders criticised last July by the Archbishop of Canterbury.

His criticism of Wonga for charging vulnerable people high rates of interest (News, 26 July 2013) was undermined by the revelation that the Church of England had a financial stake in the company, albeit an indirect one through a venture-capital portfolio holding.

The nature of a portfolio investment is that it is viritually impossible to alter the terms during the period of the investment. In Friday's announcement, the Church Commissioners stated: "The Church Commissioners estimate that, if they had had to sell their entire venture capital holdings, they might have lost £3-9 million to remove the exposure to Wonga, which was worth less than £100,000."

The announcement continued: "The Commissioners are pleased that another way forward has been agreed, given their fiduciary duties to clergy pensioners and to all the parts of the Church they support financially."

It also makes clear that the Commissioners have ensured that they have made no profit from their indirect holding in Wonga. The nature of the deal remains confidential, but it is said to be unusual.

In its recent annual report, the Ethical Investment Advisory Group (EIAG) explained that "Pooled funds are often the only way to access certain asset classes and investment strategies - including venture capital, which can not only increase financial returns for investors, but also serve society." The Wonga exposure had arisen in a pooled fund "which could not be screened in the way that direct holdings are screened".

It is believed that, by declining to take any profit from their Wonga holding, the Commissioners have signed away a six-figure profit.

Edward Mason, the newly appointed Head of Responsible Investment at the Church Commissioners, said on Friday that having an ethical approach to investments came at a potential cost.

"It is calculated that, in recent years, the ethical investment policy has cost the Commissioners about 0.2 per cent in lost profits annually," he said. "This might not seem much, but, given the size of the Church's investments, we forgo several million pounds a year by having such strict exclusions about what we will invest in.

"It's a balancing act, given our responsibility to fund clergy pensions and other church activities, and we monitor it very closely, but it is the right thing to do."

When the Wonga holding was revealed last July, Archbishop Welby admitted that he was "embarrassed" and "irritated" by the news. The Archbishop has no direct control over the Church's investments - the responsibility of the Commissioners' assets committee - but it is known that he has been putting pressure on them in recent months.

In an interview for the BBC's Andrew Marr Show, to be broadcast on Sunday, he said: "I have been absolutely clear that I do not believe that the rates of interest charged by these companies are ethical and moral - they are legal, but they are not ethical or moral.

"I can obviously apply pressure, encouragement, and I've tried to do that. I'm absolutely delighted that we are now out of Wonga, and have taken no profit from it."

The EIAG is currently drawing up policy advice about investment in pooled funds. There has also been a tightening-up of direct holdings in companies that make a proportion of their profits from excluded areas such as alcohol and gambling. A threshold of 25 per cent has been reduced to ten per cent.

Correction: In our story aboutthe EIAG annual report (News, 4 July), we stated that the EIAG was defending the holding in Wonga. We accept that this was a misrepresentation of the report's general defence of the EIAG's approach to ethical investment. Direct investments can be used to improve the ethical practices of the companies invested in. Thisis not the case with indirect investments through pooled funds. We apologise for the error.