This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.theguardian.com/money/2014/oct/02/wonga-writes-off-customer-debt

The article has changed 4 times. There is an RSS feed of changes available.

Version 2 Version 3
Wonga writes off debts for 330,000 customers Wonga writes off debts for 330,000 customers
(about 14 hours later)
The 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. Wonga, the controversial payday lender, has been forced by the new City regulator to write off £220m of loans to 375,000 borrowers that it now admits should never have been given loans.
The company, which MPs have accused of “legal loan sharking”, said it would entirely wipe out the loans, and scrap interest and charges owed by a further 45,000 customers. The company, which charges annualised interest rates of up to 5,853% a year and has been accused by MPs of “legal loan sharking”, said it would entirely wipe out loans to 330,000 people, and scrap interest and charges owed by a further 45,000 customers.
Wonga’s new chief executive, Andy Haste, said the company had been wrong to lend the money to people that could not afford to pay it back. Some of the loans are understood to be more than a year old and have ballooned from a few hundred pounds to thousands.
“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. Wonga’s new chief executive, Andy Haste - who has been brought in to overhaul the tarnished brand – said the company had been wrong to lend money to people who could never afford to pay it back.
“We are clearly very sorry for what’s happened to our customers and are doing everything to put that right.” “We are taking action to address the failing of the past. This business had been too focused on growth and cared more about the loan outcome than the customer outcome. We are clearly very sorry for what’s happened to our customers and are doing everything to put that right.”
He said Wonga had lacked experience credit professionals and “lent to people we should not have lent to”. He said Wonga lacked experienced credit professionals and “lent to people we should not have lent to”, adding: “The checks were not sophisticated enough and not strong enough.”
“The checks were not sophisticated enough and not strong enough,” he said. Wonga was forced to take action by the City watchdog, the Financial Conduct Authority, in an unprecedented crackdown on the payday loans industry. FCA officials have investigated Wonga’s practices at its offices in Camden, north London, and have hauled in Haste and other bosses to its head office in Canary Wharf.
Wonga’s action came after the City regulator, the Financial Conduct Authority (FCA), “raised concerns about our lending practices”, he added. Wonga was required to write off the debts because the FCA found that it had granted the loans without checking people could afford the repayments. The checks were found to be so poor that many borrowers had no chance of ever repaying the loan because of their dire financial circumstances, with many living on unemployment or disability benefits.
Wonga will write off the outstanding debts of 330,000 people who are more than 30 days in arrears, and let a further 45,000 people who are less than 30 days in arrears as of 2 October to pay back their loans without interest or charges. The customers affected will be notified by 10 October. Wonga estimated that the writeoffs will cost it about £35m as it has already taken provisions against many of the loans. “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, the FCA’s director of supervision. “This should put the rest of the industry on notice – they need to lend affordably and responsibly.”
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. The latest FCA action comes just months after Wonga was censured by the regulator for sending threatening letters to its customers from fake law firms named after its employees.
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. Wonga will write off all the outstanding debts of 330,000 people who are more than 30 days in arrears. A further 45,000 people who are less than 30 days in arrears as of 2 October can repay their loans without interest or charges. The customers affected will be notified by 10 October.
“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. Wonga refused to state the original value of the loans or how long they had been outstanding. It estimated the write offs – which are more than five times its annual profits – will cost it about £35m as it has already made provisions for many of the loans never being repaid.
Haste, a respected City veteran who joined the company in the summer, said he would “not apportion blame” to Wonga’s founder Errol Damelin, who quit the firm in June.
Damelin described Wonga’s interest rate as a “great deal” and called for tougher regulation to “keep the bad guys out”. The lender, he claimed, used sophisticated algorithms to ensure it did not lend to people who couldn’t afford to repay.
Damelin, who founded Wonga in 2006, had hoped to collect a £100m windfall from floating Wonga on the stock market at a suggested £1bn valuation. Sources at the company said plans for a float have been scrapped.
Haste said the company, which has been accused by the Archbishop of Canterbury of destroying lives, needs an urgent image overhaul and may even change its name.
MPs on Thursday called for Haste, Damelin and other Wonga bosses past and present to be hauled before parliament.
John Mann, a Labour MP on the Treasury select committee, said: “I welcome today’s latest step to crack down on irresponsible payday lenders … this is a company that has taken advantage of people in dire financial circumstances.
“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.“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.” Fellow Labour MP and Treasury select committee member Pat McFadden, said: “These findings drive a coach and horses through the claim that Wonga has been lending responsibly.”
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. Andrew Tyrie, the Conservative 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.”
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. Stella Creasy, the Labour MP who has campaigned against payday lenders’ practices and was subjected to personal attacks from Wonga staff, welcomed the FCA’s crackdown but said writing off the loans “does not go far enough to make up the damage and misery caused to so many lives … The FCA are clearly turning over stones and finding some very unpleasant things underneath”. “They will have my full support if they see something criminal and want to take action.”
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, it could lead to another huge bill for the company. .
Wonga has also changed its lending criteria with immediate effect. It said that from now on there would be greater scrutiny of “loan to income ratio”. Wonga said it intended to make good affected customers’ credit ratings and was contacting credit reference agencies.
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. A potential customer Wonga rejected could also immediately reapply. Now both sets of people will be barred from reapplying for 30 days. The company could be forced to make further payouts in the future as the FCA searches for other Wonga customers who should not have been granted loans but did manage to pay them off.
Wonga said that the changes would mean “a material drop in the number of loans to new and existing customers”. Wonga said it had changed its lending criteria immediately to put greater scrutiny on customers finances and their “loan to income ratio”. It will also prevent people who have been in arrears or rejected for a loan from reapplying for at least 30 days. Previously someone who had made late repayments, but then paid off a loan could immediately apply for another one.
The firm will also be implementing new software that will determine how it lends. The creation of a “lending decision engine” will be overseen by a company appointed by the FCA. Wonga warned investors, already reeling from a 53% fall in profits announced on Tuesday, that the changes will lead to “a material drop in the number of loans to new and existing customers”.
One Wonga customer, Dan, who has a loan of just over £1,000 and is more than 45 days in arrears, 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.”