Wonga writing off millions in customer debts

6 October 2014, 16:42   By Samantha Smith

Wonga are writing off the debts of 330,000 of their customers, worth some £220 million, following an agreement with the Financial Conduct Authority (FCA).

wonga payday loan
Credit: Ink Drop/Shutterstock.com

The payday lender is also cancelling the interest and charges for another 45,000 customers.

The FCA says Wonga made the loans without adequately taking into account whether customers could realistically pay them back.

Wonga will contact all borrowers affected by the announcement by 10 October.

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Who qualifies?

As part of the write-off agreement, Wonga have brought in new affordability conditions. Customers whose loans would still be approved under the stricter rules will continue to pay back the money as normal.

But for people who wouldn't have met the tighter criteria, there are two possibilities:

  • Those who were up to 29 days in arrears on 2 October will have the interest and any charges on their loans cancelled, and will be given four months to repay what they owe.
  • Those who were more than 30 days in arrears on 2 October will have their entire debt written off.

Responding to the news, Mike O'Connor of StepChange Debt Charity said:

"We welcome the action taken by Wonga, but it needs to be part of a comprehensive reform of the short-term credit market. People will always need to borrow, and we need responsible lenders to allow this to happen in a fair environment.

"We are still deeply concerned about the indebted consumers who are turning to this type of credit. Payday loans are often a last resort for people who are already struggling with precarious financial situations, and those existing serious debt problems should not be ignored."

Little sympathy

Irresponsible behaviour including a lack of proper checks to see if people can afford to pay back loans and pressurising borrowers into extending loans has pushed people deep into debt.
Gillian Guy, Citizens Advice

The biggest and best known of the payday lenders, Wonga have been a focal point for criticisms about the industry's high interest rates, advertising practises and methods of debt collection.

Earlier this year they admitted sending letters to customers in arrears purporting to be from two made up law firms, in an apparent effort to get them to pay up.

The company agreed to pay more than £2.6 million in compensation to up to 45,000 customers who had been sent letters from the non-existent companies, "Chainey, D'Amato and Shannon" and "Barker and Lowe".

But Wonga aren't alone in their less than sensitive treatment of those who fail to meet repayments.

Figures from Citizens Advice suggest that only a fifth of people struggling to repay a payday loan had the interest frozen, and just a quarter of those said their lender treated them sympathetically.

And of those seeking help from Citizens Advice for serious debt issues, one in eight has at least one payday loan, owing an average of £1,000 - often across several loans.

The FCA's Clive Adamson said it is "disappointing that some firms still have a way to go to meet our expectations. [Wonga's move] should put the rest of the industry on notice - they need to lend affordably and responsibly."

Smaller and more sustainable?

Wonga lend to around one million people per year, and it is notable for making better checks than many payday lenders as to whether potential customers will be able to pay back their loans.

But the new rules mean collecting more information on potential customers, and checking that data more carefully.

This new expense comes after the company announced a drop in its annual profits of 53%, with chairman Andy Haste saying they would be "accepting far fewer applications from new and existing customers" in the future.

While Citizens Advice chief Gillian Guy welcomes the changes, she says more needs to be done:

"Irresponsible behaviour including a lack of proper checks to see if people can afford to pay back loans and pressurising borrowers into extending loans has pushed people deep into debt.

"The new rules should contribute towards ridding the market of irresponsible lenders, but this won't be achieved by regulation alone. The FCA needs to use enforcement action make sure firms flouting the rules are not allowed to operate".

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