The debts of some 300,000 of its customers will be written off by Wonga the payday loans lender announced recently. This will wipe some £220 million worth off debt off the books for customers whose loan is more than a month in arrears. It is something of a surprise move for Wonga, which announced a 50% fall in profits just two days before. In addition to those debts that will be written off, another 45,000 customers will have their interest and charges deleted so that the debt can be paid off without any of the additional costs that are normally applied by the lender when one of their loans becomes overdue.
The decision to write off these loans has come following ‘discussions’ that the lender has had with the Financial Conduct Authority (FCA) so the gesture is no doubt not entirely down to Wonga’s goodwill. In fact, Wonga has generally found itself on the wrong side of the regulator in recent months and has been hauled over the coals for a number of rather dubious decisions it has made. In particular, the lender was fined £2.6 million after it was found to have been sending fake letters to customers which purported to be from a solicitor and Wonga has also had a TV advert banned. The discussions with the FCA cannot have been pleasant for Wonga, particularly given the crackdown on the industry that the FCA has highlighted in recent months. 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."
Wonga has since made statements that it will be approving far fewer applications and there seems to have been some acceptance of the fact that, in the past at least, affordability criteria have not been strictly enough applied. The decision to write off these loans could well be an acknowledgement that perhaps the loans should never have been entered into in the first place. According to Wonga chairman Andy Haste, "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.”
The statement of intent that the FCA intends to overhaul the payday loans industry has been backed up by some very significant changes. For example, it is no longer possible for borrowers to roll over a loan more than twice before it becomes due for payment, meaning that payday loans companies can’t simply allow customers to continue incurring rollover charges and running up more and more interest every month. The hope is that the new regime will prevent lenders from offering unaffordable loans to consumers to prevent large numbers of people finding themselves in the awful, stressful position of being unable to repay what they have borrowed.