2nd October 2014
Payday lender Wonga is writing off debts, reportedly totalling £220,000, of 330,000 customers who are in arrears of 30 days or more writes Philip Scott.
In addition, another 45,000 borrowers who are in arrears of up to 29 days as at 2 October 2014, will have to pay back their debt but can now do so without paying charges or interest over a period of four months.
The move comes as a result of Wonga’s discussions with the City watchdog, the Financial Conduct Authority (FCA). It has now entered into an agreement, known as a voluntary requirement (VREQ), with the FCA which requires it to make significant changes to its business immediately.
When the FCA took over regulation of consumer credit in April of this year, it requested information about the volume of Wonga’s relending rates. The information it received suggested that Wonga was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.
Wonga will be contacting all customers by 10 October to notify them if they will be included in the redress programme. Customers should now continue to make payments unless they are told to stop by the firm. Borrowers who are experiencing financial difficulty, should contact Wonga to discuss their options.
The FCA said it will continue to work with Wonga to identify whether there is any other remedial action required and if necessary, further details will be communicated by the firm in due course.
Clive Adamson, director of supervision at the FCA said: “We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations. This should put the rest of the industry on notice – they need to lend affordably and responsibly.
“It is absolutely right that Wonga’s new management team has acted quickly to put things right for their customers after these issues were raised by the FCA.”
Effective today, Wonga has introduced new interim lending criteria which the FCA believes should improve customer outcomes.
In a statement, Wonga said: “We have been working closely with the FCA to agree additional requirements to our lending criteria, which have been implemented as of the 2 October 2014 across our UK consumer loans service.
“We’re changing the way we make decisions about lending, and setting additional requirements around the financial circumstances of people we can lend to which will impact the amount we lend them. On conducting a review into our previous lending criteria, we recognised that we may not have always made the right lending decisions, and on reflection some of these loans may not have been affordable.
“Consequently we’re implementing a major forbearance programme for existing customers whose loans would not have been made had they been subject to the new affordability criteria introduced today. We’re working closely with the FCA to agree this programme for these impacted customers.
Commenting on the announcement, Andrew Tyrie MP, Chairman of the Treasury Committee, said: “Many consumers are still being treated badly by financial firms—new cases just keep coming. We will want reassurance that these firms have cleaned up their act, and Wonga may well be one of them.”
This week the controversial lender, which charges interest rates equivalent to 5853% per year, announced that its annual profits had dropped by 53%, to £39.7m from £84.5m a year earlier as result of “remediation costs related to historic debt collection and systems issues” as well as investment and international expansion.
In June, Wonga was ordered to pay £2.6m in compensation to up to 45,000 customers after it was found to have invented law firms in order to put pressure on borrowers to pay back their loans. The imaginary firms had names such as Barker and Lowe and Chainey, D’Amato and Shannon. The company also admitted earlier this year that it had over-charged 200,000 borrowers due to a technical error.