Wonga to write off payday loan debt for 330,000 borrowers
FCA orders Wonga to change lending criteria and wipe debt for thousands of borrowers.
Wonga has been ordered by the Financial Conduct Authority (FCA) to make significant changes to its business and wipe the debt of thousands of borrowers.
The action follows a review into the payday lender's relending rates, which found it was not taking the appropriate steps to assess a borrower’s ability to meet repayments in a sustainable manner.
As a result Wonga has had to enter into an agreement known as a voluntary requirement (VREQ) that means it has to make significant changes to its business immediately and provide forbearance to those impacted by the firm’s poor lending practices.
New lending criteria
From today Wonga will introduce a new interim lending criteria that meets the FCA’s affordability requirements and standards.
A new permanent lending set of criteria will be put in place at a later date with the help of an independent ‘Skilled Person’ appointed by the FCA.
Forbearance
Wonga has agreed to forbearance for existing borrowers whose loans were made under the old affordability criteria.
The FCA says around 330,000 borrowers who are currently in excess of 30 days in arrears will have the balance of their loan written off.
Around 45,000 borrowers who are between 0 and 29 days in arrears will be asked to repay their debt without interest or charges and given the option of paying off their debt over an extended period of four months.
Wonga will be contacting all customers by 10th October to inform them if they will be included in the forbearance programme.
The FCA says borrowers should continue to make payments unless they are told to stop by the firm.
Wonga says it will work with the FCA to identify if any further remedial action is required
What the FCA says
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.”
What Wonga says
Andy Haste, who joined Wonga as Group Chairman in July, said: “We want to ensure we only lend to those who can reasonably afford the loan in question and during my review, it became clear to me that this has unfortunately not always been the case. I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.
“It’s clear to me that the need for change at Wonga is real and urgent. Our regulator is determined to improve standards in consumer credit and I share that determination. There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.”
End of Wonga?
It’s not been a good year for Wonga.
In June, the payday lender was ordered to pay compensation for its dodgy debt collection letters.
And earlier this week it emerged the penalty, which totalled £10 million, has caused the firm’s profits to halve.
This latest remedial action ordered by the FCA is likely to further impact the company’s fortunes.
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Comments
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People taking on debt they cannot afford has ruined the economy and ruined things for me, and I have no debt. Where do I claim the 20k plus I'm owed due to unfair, low interest rates? These people took on the loan and should be made to pay it, no excuses. I bet the government (us mug tax payers) end up forking out.
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The real problem is that they shouldn't have been allowed to offer such loans in the first place. As for the people that got 'unfair' loans, the interest rate was clearly advertised (I had to see/listen to it almost everyday recently) and they agreed to it, yet their debt is written off. Whereas other people who took out loans responsibly still have to pay their loans, as everyone with a loan should. Doing the right thing is now the last thing that is rewarded in this country :-(
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@JRR It is likely that in law, if the loans that were written off, were considered to be 'unfair', then those that have repaid their loans might also argue successfully, that their loans too were unfair. I suspect the lawyers are rubbing their hands in anticipation of another PPI bonanza, although not on the same scale.
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02 October 2014