How do you solve a problem like Wonga?

The critics of the payday lending industry have been tweeting with delight today, enjoying every moment of Wonga's humiliation after the FCA announced it was being forced to pay £2.6m in compensation to customers. The FCA's astonishing revelation was that, as recently as four years ago, Wonga was sending fake legal letters to its customers if they fell into arrears. Employees at Wonga would come up with entirely fictitious names for legal firms, and then send clients letters from these fake firms, claiming that they had been instructed by Wonga to collect the debt. This, no doubt, put the fear of god into the hearts of customers who were already under considerable stress from the pinch in their finances.

Wonga should count itself incredibly lucky that it was not under the FCA's jurisdiction at the time of these offenses, or it would certainly have been landed with a hefty fine today, on top of its compensation order.

Teflon Wonga

Nevertheless, fine or no fine, I doubt any of this will have much of an impact on Wonga's business as a whole.

Over the last few years, Wonga has become adept at deflecting the barrage of criticism which has come its way from consumer groups, politicians and debt charities. As the largest and best known brand in the payday lending market, it no longer needs to lower itself to the kind of tactics that it was indulging in four years ago, when this was still an emerging market. Instead, it now focuses on trying to build a reputation for being the most transparent and responsible lender in the short-term credit market. And it's hard not to feel that it's winning the battle.

While Wonga's latest accounts are hard to come by - its 2012 annual report shows profits of over £60m - and one can only assume that this grew significantly last year. As bad press around the sector continues, Wonga's high profile advertising and sponsorship of premier league football teams seems to leave it mopping up more and more business at the expense of its competitors.

Regulation, regulation, regulation

To give Wonga some credit, it is now leading the way in cleaning up the industry. But while it's important we eliminate the bad behaviour and irresponsible lending that some of the smaller players have been indulging in, these are a side issue compared to the bigger problem of how we contain the growth of the short-term lending industry.

As I wrote in a blog a few days ago, payday loans are more dangerous than cigarettes, and make it far too easy to make a bad financial decision. As Wonga says on its website "We can send up to £400 to your account within 5 minutes of your loan being approved". Speed - in the world of borrowing - is a liability not an asset.

Wonga's success - and its impressive ability to turn the media storm around payday loans to its advantage - should be of grave concern to policymakers. Perhaps the only way to solve a problem like Wonga is to regulate it to within an inch of its life.