High-interest, short-term payday lender Wonga announced on Thursday it is to write off debts for 330,000 customers worth £220 million. Had the affordability checks which are required now existed before, those 330,000 customers would not have had their loans approved.
The customers have been in arrears for least thirty days as at October 2nd.
Wonga added that for a further 45,000 customers who are in arrears of 29 days or less as at October 2nd, their debt will have no interest or charges. They will also be able to pay off their loan over an extended period of four months.
The lender said the affected customers will be told by October 10th.
Wonga has written off the money it lent to people who could not afford to pay back.
Wonga Chairman Andy Haste, who joined the company in July, said:
“When I joined Wonga I was made aware of concerns the FCA had already expressed around affordable lending, concerns which I shared. I committed to ensuring our lending is conducted in a responsible and transparent manner, delivering the best outcomes for our customers. I also said this would lead to a tightening of Wonga’s lending criteria and we will now be accepting far fewer applications from new and existing customers.”
Mr. Haste added that Wonga wants to make sure it only grants loans to people who can reasonably afford it. During his review he became aware that this had not been the case.
Mr. Haste said:
“It’s clear to me that the need for change at Wonga is real and urgent. 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.”
Last week, Wonga announced that profits in 2013 had declined by 53% to £39.7 million due to ‘remediation costs’ (money refunded to customers because of mistakes).
Wonga to work with a 3rd party
The lender says it would now work with a third party, appointed in conjunction with the Financial Conduct Authority (FCA), to make sure it is ‘delivering appropriate outcomes for customers.”
As its lending criteria has changed considerably, Wonga warned that it will be approving fewer loan applications, while some current customers may not be able to use the service any more.
Director of Supervision at FCA, Clive Adamson, 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.”
“It is absolutely right that Wonga’s new management team has acted quickly to put things right for their customers after these issues were raised by the FCA.”
Financial Times Video – Wonga’s future after writing off debt