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Wonga to write off debts of £220m for 330,000 customers Wonga writes off £220m for 330,000 customers
(about 3 hours later)
Controversial payday lender Wonga has agreed to write off the debts – thought to total £220m – of 330,000 customers who are in arrears of 30 days or more. Controversial payday lender Wonga is writing off £220m of loans to 330,000 people, admitting that it should never have lent to them in the first place.
A further 45,000 customers who are in arrears of up to 29 days, as of 2 October, will still have to have to repay their debt but will have all interest and charges wiped from it. They will also be given an option to pay over an extended period of four months. The company, which has been accused of “legal loan sharking” by MPs, said it would entirely wipe out the loans owed by 330,000 people and scrap interest and charges owed by a further 45,000.
The unexpected announcement came, Wonga said, as a “consequence of discussions with the FCA”, the City regulator. Wonga’s new chief executive, Andy Haste, said the company had been wrong to lend the money to people that could not afford the loans.
In a statement the FCA said that when it took over regulation of consumer credit in April it requested information about the volume of Wonga’s relending rates. It said it realised then that Wonga “was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner”. “We are taking action to address the failing of the past,” Haste said. “This business had been too focused on growth and cared more about the loan outcome than the customer outcome.
“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,” said Clive Adamson, director of supervision at the FCA. “This should put the rest of the industry on notice – they need to lend affordably and responsibly.” “We are clearly very sorry for what’s happened to our customers and are doing everything to put that right.”
Andy Haste, new chairman of Wonga said it was clear that the need for change at Wonga was “real and urgent”. He said Wonga had lacked experience credit professionals and “lent to people we should not have lent to”.
“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,” he said. “The checks were not sophisticated enough and not strong enough,” he added.
Affected customers will be contacted by 10 October 2014. Haste said Wonga’s action came after the City regulator, the Financial Conduct Authority (FCA), “raised concerns about our lending practices”.
Wonga will write off the outstanding debts of 330,000 people who are in arrears of 30 days or more, and let a further 45,000 people who are in arrears of less than 30 days, as of 2 October, to pay back their loans without interest or charges. Customers affected will be notified by 10 October. Wonga estimated that the write-offs will cost it about £35m as it has already taken provisions against many of the loans.
Haste, a respected City veteran who joined the company in the summer, said he would “not apportion blame” on Wonga’s founder Errol Damelin who quit the firm in June.
John Mann, a Labour MP on the Treasury select committee, said Wonga should be called before parliament urgently to explain its “underhand tactics”, which he said disproportionately affected poor people.
“I welcome today’s latest step by the FCA to crack down on irresponsible payday lenders and this is a company that has taken advantage of people in dire financial circumstances,” he said.
“Sadly, it comes as no surprise to learn that Wonga knowingly lent money to people who will never be able to afford to repay a loan and it is morally right that they have been forced to write off these loans.
“I have written to the chairman of the Treasury select committee asking that he summons Wonga’s senior management to appear before the committee to explain their actions.”
The action has come about because Wonga was granting loans to borrowers without checking that they could afford to make the repayments. The company boasts on its website that it will pay the money into customers accounts within five minutes of the loan being approved.
It is understood that the checks the lender was making were so poor that many of its borrowers had no chance of ever repaying the loan because of the dire financial situation they were already in.
The FCA and Wonga are continuing to look at whether any other customers might be affected. It is understood that this could include former Wonga customers who managed to pay off their loans but should never have been lent to in the first place. If these customers were identified, this could lead to another huge bill for the payday loan company.
As well as the redress announced to customers, Wonga has also changed its lending criteria from Thursday. It said there will now be greater scrutiny of “loan to income ratio” – in other words it will look more closely at the amount a borrower earns and work out whether they can make the repayments on their requested loan.
It will also put a “30-day freeze” in place for people who have been in arrears before or have been rejected for a loan. Previously someone who had made late repayments but then paid off a loan could immediately apply for another one. Similarly, someone who had been rejected by Wonga could also immediately reapply. Now both sets of people will be barred from reapplying for 30 days.
Wonga said that the changes would mean “a material drop in the number of loans to new and existing customers”.
The firm will also be implementing new software that will determine how it lends. The creation of this new “lending decision engine” will be overseen by a company appointed by the FCA.
One Wonga customer, Dan, who has a loan of just over £1,000 with the payday lender and is in arrears of more than 45 days welcomed the news. “Though no guidelines have yet to be published, I am hoping this deal struck puts me in the bracket of those who do not need to repay,” he said. “If so, it would be a very welcome gift.”