Wonga to write off 330,000 debts

The financial regulator has ordered Wonga to change its business and wipe out 330,000 people's debts.

Payday loan company Wonga has been told to write off hundreds of thousands of people's debts and change the way it runs its business.

Following a review of the number of times Wonga relends money to people, the Financial Conduct Authority (FCA) regulator has stepped in,

The FCA says Wonga was not taking the appropriate steps to assess a borrower’s ability to meet repayments in a sustainable manner.

As a result Wonga has had to enter into an agreement known as a voluntary requirement that means it has to make significant changes to its business immediately and provide what's known as 'forbearance' to people affected by the firm’s poor lending practices. It will do this by either writing off debt or not charging interest and fees.

New lending criteria

From today Wonga will introduce a new interim lending criteria that meets the FCA’s affordability requirements and standards.

A new permanent lending set of criteria will be put in place at a later date with the help of an independent ‘Skilled Person’ appointed by the FCA.

Forbearance

Wonga has agreed to forbearance for existing borrowers whose loans were made under the old affordability criteria.

The FCA says around 330,000 borrowers who are currently in excess of 30 days in arrears will have the balance of their loan written off.

Around 45,000 borrowers who are between 0 and 29 days in arrears will be asked to repay their debt without interest or charges and given the option of paying off their debt over an extended period of four months.

Wonga will be contacting all customers by 10th October to inform them if they will be included in the forbearance programme.

The FCA says borrowers should continue to make payments unless they are told to stop by the firm.

Wonga says it will work with the FCA to identify if any further remedial action is required

What the FCA says

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.

“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.”

What Wonga says

Andy Haste, who joined Wonga as group chairman in July, said: “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. I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions. 

“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.”

A bad year for Wonga

It’s not been a good year for Wonga.

In June, the payday lender was ordered to pay £10 million in compensation for its dodgy debt collection letters.

And earlier this week it emerged the penalty had caused the firm’s profits to halve.

This latest action ordered by the FCA is likely to further impact the company’s fortunes.