Wonga cancels the debts of 330,000 customers | Wonga
Wonga, the controversial payday lender, has been forced by the city’s new regulator to cancel £ 220million in loans to 375,000 borrowers who he says should never have received loans.
The company, which charges annualized interest rates of up to 5,853% per annum and has been accused by lawmakers of “legal loan sharking,” said it would wipe out loans to 330,000 people entirely and cut loans. interest and charges owed by 45,000 other customers.
Some of these loans are said to be over a year old and have gone from a few hundred pounds to thousands.
Wonga’s new chief executive Andy Haste – who has been hired to overhaul the tarnished brand – said the company was wrong to lend money to people who could never afford to pay it back.
“We are taking action to remedy past failures. This business was too growth-oriented and cared more about the loan outcome than the customer outcome. We are clearly sorry for what has happened to our customers and are doing everything to correct it. “
He said Wonga lacked experienced credit professionals and “loaned to people we shouldn’t have lent to,” adding, “The checks weren’t sophisticated enough and not strong enough.”
Wonga was forced to take action by the city’s watchdog, the Financial Conduct Authority, in an unprecedented crackdown on the payday lending industry. FCA officials investigated Wonga’s practices at its Camden, north London offices, and took Haste and other bosses to its headquarters in Canary Wharf.
Wonga was forced to write off the debts because the FCA found that it had granted the loans without verifying that people could afford the repayments. The checks turned out to be so bad that many borrowers had no chance of repaying the loan due to their dire financial situation, many living on unemployment or disability benefits.
“We are committed to raising standards in the consumer credit market and it is disappointing that some companies still have a long way to go to meet our expectations,” said Clive Adamson, FCA’s director of oversight. “This should alert the rest of the industry – they need to lend affordably and responsibly.”
The latest FCA action comes just months after Wonga was censored by the regulator for sending threat letters to clients from fake law firms bearing the names of his employees.
Wonga will write off all unpaid debts of 330,000 people who are more than 30 days past due. 45,000 other people in arrears of less than 30 days on October 2 can repay their loans without interest or fees. Affected customers will be notified before October 10.
Wonga declined to indicate the original value of the loans or how long they were outstanding. He has estimated that amortization – which is more than five times his annual profit – will cost him around £ 35million as he has already arranged for many loans that will never be repaid.
Haste, a respected City veteran who joined the company this summer, said he “would not blame” Wonga founder Errol Damelin, who left the company in June.
Damelin described Wonga’s interest rate as a “good deal” and called for tighter regulations to “keep the bad guys out”. The lender, he claimed, used sophisticated algorithms to ensure that he was not lending to people who could not afford to repay.
Damelin, who founded Wonga in 2006, had hoped to raise a windfall of £ 100million by floating Wonga on the stock market at a suggested valuation of £ 1billion. Company sources said plans for a float were scrapped.
Haste said the company, which has been accused by the Archbishop of Canterbury of destroying lives, urgently needs an overhaul and may even change its name.
MPs on Thursday called for Haste, Damelin and other Wonga bosses past and present to be dragged to parliament.
John Mann, Labor MP on the Treasury Select Committee, said: “I welcome the latest move today to crack down on irresponsible payday lenders… this is a business that has taken advantage of those in difficult financial circumstances.
“Unfortunately, it is not surprising to learn that Wonga knowingly lent money to people who can never afford to repay a loan and it is morally right that they were forced to cancel these loans. .
Another Labor MP and member of the Treasury Select Committee, Pat McFadden, said: “These results lead a trainer and horses to claim that Wonga lent responsibly.”
Andrew Tyrie, Conservative Chairman of the Treasury Committee, said: “Many consumers are still treated badly by financial companies – new cases keep coming. We’ll want to be reassured that these companies have cleaned up their act, and Wonga just might be one of them. “
Stella Creasy, the Labor MP who campaigned against the practices of payday lenders and faced personal attacks by Wonga staff, welcomed the FCA crackdown but said the cancellation of loans “does not go far enough to make up for the damage and misery caused to this many lives… The FCAs are clearly turning rocks and finding very nasty things underneath.” “They will have my full support if they see something criminal and want to act. “
Wonga said he intends to improve the credit score of affected customers and is contacting credit reference agencies.
The company could be forced to make further payments in the future as FCA seeks out other Wonga clients who should not have secured loans but were able to repay them.
Wonga said he immediately changed his lending criteria to take a closer look at clients’ finances and their “loan-to-income ratio.” It will also prevent people overdue or turned down for a loan from reapplying for at least 30 days. Previously, a person who made late repayments but then paid off one loan could immediately apply for another.
Wonga warned investors, already shaken by the 53% drop in profits announced on Tuesday, that the changes will result in “a significant drop in the number of loans to new and existing customers.”