PAYDAY loans giant Wonga has agreed to write off the debts of 330,000 customers – believed to total more than £220 million – after introducing new affordability checks on its loans.
The firm, which offers short-term loans at high interest rates, said it had implemented the “forbearance programme” after discussions with financial watchdog the Financial Conduct Authority (FCA). It is also to strengthen its lending criteria and implement a “new lending-decision engine”.
It is expected the move will see “significantly” fewer customers using Wonga’s service which, in turn, will hit the profitability of the firm, which saw profits halve to £39.7 million last year.
The news comes just months after the company took on new chief executive Andy Haste, who has vowed to “reinvent” Wonga.
The company came under fire from politicians and consumer organisations for offering people unaffordable loans with up to 5,000 per cent interest rates, sending them spiralling into further financial problems.
“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,” said Mr Haste, who joined the company in July.
Mr Haste, who was chief executive of FTSE 100 insurer RSA Group from 2003 until 2011, has promised a review of the customer base and the existing lending criteria, as two of six priorities to ensure Wonga provides short-term lending to the right customers in a “responsible, transparent and sustainable way”.
Consumer groups welcomed the news, which comes four months after Wonga admitted it had sent fake legal letters to tens of thousands of customers, chasing debts.
“This action against poor lending practices by Wonga is a very welcome step by the regulator,” said Citizens Advice Scotland head of policy Susan McPhee.
“Given that the company has styled itself as the ‘gold standard’ of payday lending, this is another embarrassing admission of guilt after their recent attempts to trick customers with fake lawyers.
“Today’s action will be a message that sounds loud and clear to other lenders. They must ensure the debt they are signing people up to is affordable for that person’s income. Anything less will now result in serious repercussions.”
Which? executive director Richard Lloyd said: “Wonga’s announcement is better late than never for struggling borrowers but it’s clearly a result of the regulator taking a tougher approach. The FCA must keep payday lenders on a tight leash.”
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents short-term lenders, hailed the move as the “new lending landscape” for the lenders.
“The FCA’s rules mean that tighter affordability checks are already having an impact with 54 per cent fewer loans being granted and rollovers down by 75 per cent,” he said.
“Borrowers can expect to see further changes with the ‘cost of credit’ cap that will control prices of loans and additional measures from the Competition and Markets Authority due to be announced before the end of the year.”
Wonga is now to work with a third party appointed in conjunction with the FCA.