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Wonga to cut third of staff following new clampdown on payday …

Wonga is slashing about a third of its workforce to cut costs as it responds to a wider clampdown on unfair practices in the payday lending market.

The controversial lender said 325 jobs would go, mainly in the UK and Ireland. Wonga’s Dublin office will close as part of the plans, as will its office in Tel Aviv.

Related: Payday lending will shrink but only a complete ban will do

Andy Haste, the lender’s chairman, said: “Wonga can no longer sustain its high cost base, which must be significantly reduced to reflect our evolving business and market.

“Regrettably, this means we’ve had to take tough but necessary decisions about the size of our workforce. We appreciate how difficult this period will be for all of our colleagues and we’ll support them throughout the consultation process.”

Wonga’s decision to cut jobs came on the same day that the Competition and Markets Authority announced new rules to force payday lenders into being more transparent about their charges. The CMA is hoping that it will create more competition in the market, lowering costs for millions of consumers who rely on the loans.

Wonga employs a total of 950 people worldwide, but all the job losses relate to its UK payday loans business, which employs 650 people – about 280 in the UK, 175 in Ireland, 185 in South Africa and 10 in Israel.

It is understood about 100 jobs will go in the UK alone. All jobs will go in Ireland and Israel.

The group is aiming to achieve overall cost savings of at least £25m over the next two years, following a period of rapid expansion that saw costs treble between 2012 and 2014.

When Haste was appointed chairman last July, he said Wonga would become smaller and less profitable as it scaled back the number of customers it extended loans to, imposing stricter lending criteria.

In October the company was forced by the City watchdog, the Financial Conduct Authority, to write off £220m of loans to 375,000 borrowers, who it admitted should never have been given loans.

Wonga also announced on Tuesday that its former chairman Robin Klein was stepping down from the board after eight years.

The payday loans industry is undergoing a major shakeup as regulators seek to make the market fairer for cash-strapped consumers.

Under the new rules announced on Tuesday, lenders will have to list their deals on price-comparison websites and make it easier for customers to compare the total cost of different loans offered by various lenders.

Payday lenders will also have to provide customers with a summary of the total cost of their loans, as well as how additional fees such as late repayment affect the cost.

The recommendations were made after a 20-month inquiry into the payday loans industry by the CMA.

The watchdog concluded that a lack of price competition between lenders had driven costs higher for borrowers, with most people failing to shop around partly owing to a lack of clear information on charges.

Simon Polito, who ran the inquiry, said: “We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time.”

The CMA’s decision follows an earlier clampdown by the UK financial regulator, the Financial Conduct Authority (FCA).

The authority introduced a price cap on 2 January to ensure that borrowers are never forced to repay more than double the amount of their original loan.

Interest and fees were capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan was limited to 100% of the original sum. Default fees were to be capped at £15 to protect people struggling to repay their debts.

Polito said: “The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans.

“We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.”

Joanna Elson, chief executive of the Money Advice Trust charity, welcomed the action from the CMA and FCA but added a note of caution: “This is good news for the consumer. More competition and transparency in the payday loan market will ensure that the FCA’s cap on the cost of credit remains precisely that– a cap, not the norm.

“This is a good example of regulators working together to bring about meaningful change in this sector. However, these improvements in the way that payday loans are regulated must not dilute the core message that payday lending remains an extremely expensive way to borrow,” she said.

Payday lenders will be forced to publish the details of their products on at least one price comparison website, authorised by the FCA. The CMA said on Tuesday it would work closely with the FCA to implement the new recommendations.


Payday loan caps come into force | Money | The Guardian

Well over a million people will see the cost of their borrowing fall now that new price caps on payday loans have taken effect.

However, early indications are that many of the sector’s bigger players will be charging the maximum amount allowed to under the new regime, rather taking the opportunity to set their fees below the cap.

Interest and fees on all high-cost short-term credit loans are now capped at 0.8% per day of the amount borrowed. If borrowers do not repay their loans on time, default charges must not exceed £15.

In addition, the total cost (fees, interest etc) is capped at 100% of the original sum, which means no borrower will ever pay back more than twice what they borrowed, said the Financial Conduct Authority (FCA), which has introduced the new rules.

Someone taking out a £100 loan for 30 days and paying it back on time will not pay more than £24 in fees and charges.

Payday lending is a multibillion-pound sector: the Competition & Markets Authority said there were 1.8 million payday loan customers in 2012-13, while the FCA estimates that in 2013, 1.6 million customers took out around 10m loans. However, some lenders quit the market before the changes took place. These include Minicredit, which ceased its lending on 10 December.

Consumer organisation Which? said the new regime “comes not a moment too soon”. Richard Lloyd, Which? executive director, said: “The regulator has clearly shown it is prepared to take tough action to stamp out unscrupulous practices, and they must keep the new price cap under close review.”

Which? carried out research into the amounts payday lenders were charging just before Christmas, to see if they had cut the cost of borrowing ahead of the price caps taking effect. It found that some of the bigger payday lenders had already brought their charges in line with the price caps. Wonga, QuickQuid, PaydayUK and MyJar were charging the maximum £24 to borrow £100 for 30 days, with default fees charged at £15.

When the Guardian checked some of the lender websites on 31 December, it found some had not yet updated their pricing.’s website was quoting a cost of £135 for a £100 loan over 30 days, while showed a cost of £134.70 and Safeloans quoted £130.

Which? said London Mutual credit union was the only payday loan provider it looked at that charged less than the maximum allowed under the cap, with borrowers having to pay just £3 in interest on a loan of £100 over one month, with no default fees.

Martin Wheatley, chief executive of the FCA, said the new caps would make the cost of a loan cheaper for most consumers. “Anyone who gets into difficulty and is unable to pay back on time, will not see the interest and fees on their loan spiral out of control – no consumer will ever owe more than double the original loan amount,” he added.

However, it appears the new regime will not spell the end of the huge annualised interest rates quoted on payday loan websites. Despite the changes, Wonga is still able to charge a representative APR of 1,509%, while QuickQuid’s site was promoting an APR of 1,212%.

New rules covering payday loan brokers have also taken effect after the regulator was deluged with complaints over practices such as imposing charges that consumers often knew nothing about until they checked their bank account.

These firms cannot now request an individual’s bank details or take a payment from their account without their explicit consent first. Payday loan brokers will also have to include their legal name, not just their trading name, in all advertising and other communications with customers, and state prominently in their ads that they are a broker, not a lender.


Will the payday loan cap really benefit consumers? | Faisel Rahman …

The payday loan rules confirmed by the Financial Conduct Authority yesterday for high-cost short-term credit will cause a major shake-up of the market. Whether that will be a good thing for consumers remains to be seen.

From 2 January a new price cap will affect any loan advertised at 100% APR unless it is provided by a home credit provider or a community finance organisation. The cap will limit interest charges to just 0.8% a day and ensure that nobody will repay more than twice what they borrowed, including fees. This means that a £100 loan for 10 days will cost £108, but if extended or defaulted it won’t cost more than £200. The FCA thinks it likely that many payday loan firms will leave the market unless they change their business models, leaving just the three main online lenders and one high street provider – who currently represent about 60% of the lending market.

The cap will clearly have a massive impact on the market, but perhaps not in the way most people think. While the total cost of credit will be limited to 100%, it won’t reduce APRs, as these are an annualised representation of interest rates – so still expect to see interest rates of 2,000%-plus advertised online and on TV.

Furthermore, the FCA’s own analysis suggests that the four biggest lenders will not be affected by the cap as their charges are already below it, or they are in the process of adapting. The market leader is Wonga, so it seems the cap will affect neither its interest rate nor its profitability. However, since many of the small players may leave the payday-lending market, the sector will become a big-four monopoly led by Wonga. That can’t be good for consumers.

The FCA also estimates that 70,000 current borrowers would be denied finance under the new rules. Its modelling suggests that only about 2% of this group will potentially use a loan shark instead (though the numbers using loan sharks are notoriously difficult to estimate, and generally under-reported). The FCA’s research also suggests that many more borrowers will be offered less than they need, causing further problems.

The cap will clearly limit the harm those with spiralling payday loan debts face, but other measures could have a bigger impact, such as the clampdown on the abuse of the continuous payment authority (the device that allows a lender to empty your bank account at will) and measures to enforce loan affordability – a problem that recently forced Wonga to write off £220m in loans.

This new cap should be a great opportunity for alternatives to fill this gap – with suggestions that Community development finance institutions (CDFIs) or even credit unions could provide a responsible and affordable alternative. Sadly, few credit unions have an online presence, and fewer still offer any type of payday loan equivalent. CDFIs such as Fair Finance (where I work) and Moneyline offer an alternative, and with access to bank and private capital can meet some demand. While they have had more success in weaning people off high-cost providers, they are mainly branch-based and don’t match the convenience or speed of online payday providers. If these organisations want to be considered a serious alternative they require massive investment in people, know-how and finance to deliver the right products. Some of them are moving in that direction, but sadly most of them are not.

Interestingly, it is the home credit market – most disrupted by the payday lending industry – that offers a different perspective. It is exempt from the current price cap, and companies such as Provident Financial (the largest doorstep lender in the UK) have the national scale and resources to take advantage of the upcoming changes. It will be interesting to see if they will.


Four in ten borrowers get a payday loan even if one lender rejects them

Four percent of these people admitted to taking money from an unlicensed lender after they were rejected, and 2pc went into debt with a credit union. More than three-quarters did not know whether their lender was licenced, and 33pc said they had considered borrowing from an unlicensed lender after they were rejected by the major payday loans firms.

“The more rigorous affordability checks mean they are turning down people [who] still want a short-term loan,” said Russell Hamblin-Boone, chief executive of the CFA. “The worry is, are the other payday lenders being as rigorous as the most compliant members or are they new lenders that are under the regulators’ radar at the moment?”

The FCA took over regulating consumer credit in April, bringing about 500 payday lenders under its remit. The watchdog found in its own survey of 2,000 customers that 60pc said they would not borrow money if they were denied access to payday loans, while up to 30pc said they would ask family and friends for help.

The regulator plans to introduce a price cap of 0.8pc per day on short-term loans and an overall ceiling on charges set at 100pc of the loan value from next year in an attempt to curb the proliferation of lenders that offer debts with excessive interest rates and punitive charges. Firms must also apply for FCA permission to offer consumer credit.

A competition investigation by the Competition and Markets Authority in June found that the average customer takes out six payday loans a year.

“If a consumer has one loan application declined, it does not necessarily mean an application won’t be approved by another lender elsewhere,” said an FCA spokesperson. “Not all lenders offer loans for the same amounts, rates or durations. A decision to lend will vary between lenders based on how they assess credit risk, their appetite for risk and the amount of capital available to lend.

“The FCA also expects all lenders to carry out appropriate affordability checks to ensure that people can afford to pay back what they borrow.”

The FCA and CFA polls both found that users of short-term loans often have mixed feelings about borrowing in this way. The FCA found that 41pc of first-time borrowers regretted taking out the loan, while 44pc of the CFA respondents said they would feel better off if they no longer had access to short-term debt.

Loans company Wonga announced earlier this month that it was writing down £220m-worth of customer debt after reviewing its affordability checks.


Young people with debt more likely to get payday loan than go to bank

Young people under the age of 25 are more likely to turn to payday loan companies such as Wonga to make ends meet than approach their bank, building societies or a credit card provider, according to Citizen’s Advice.

It analysed 30,000 of the most serious debt problems it sees in its bureaux and found that while 10% of these were suffered by 17-24 year olds, payday loans accounted for 62% of the credit used by this age group. Only 8% of the 3,000 youngsters were in debt because of mainstream credit such as overdrafts, bank loans or credit cards.

Over a third of those who were suffering severe debt problems were not “Neets” – Not in Education, Employment, or Training – said Citizen’s Advice, but were in work.

“Generation Y is fast becoming generation credit,” said Citizen’s Advice chief executive, Gillian Guy. ““It is a big concern that so many young adults are turning to some of the most expensive types of loan to get by. Taking out a payday loan in your late teens or early twenties can have significant and damaging consequences for later life.”

Less well-known types of high-interest credit, such as guarantor and logbook loans, are also contributing to the severe debt problem suffered by the youngest borrowers. Guarantor loans are those in which another individual is listed as being liable for repayments if the borrower cannot make payments, while logbook loans use people’s car as security.

Separate research from the Financial Conduct Authority found that around 40,000 consumers took out logbook loans in 2013, typically borrowing £1,000 a time, although lenders offer sums of up to £50,000. Citizen’s Advice said it expected the number of logbook loans taken out to rise by 61% this year.


Wonga dithers over writing off improperly granted loans | Business …

Wonga customers are anxiously waiting to find out whether they are among the 330,000 borrowers having their payday loans written off.

The UK’s best-known payday lender has been forced to refund borrowers after the City regulator discovered it had lent money without making sure borrowers were able to make repayments.

Those who should never have been given loans and have fallen more than 30 days behind with repayments will have their debts wiped entirely, while a further 45,000 who are up to 30 days in arrears will have their interest and charges waived.

Wonga has been the subject of growing controversy for making loans of up to £1,000 in a matter of seconds, often to borrowers who ended up taking out further loans to pay off their debts.

Although it claimed that an algorithm checked between 6,000 to 8,000 “data points” for each online application and was a better indication of borrowers’ ability to repay a loan than traditional credit scoring checks, information it supplied to the Financial Conduct Authority (FCA) confirmed claims by debt charities and campaigners that Wonga was not properly ensuring that customers could afford to meet their commitments.

The FCA gave the firm, which quotes an annual interest rate of 5,853%, until the end of Friday to contact those affected by the inadequate affordability checks and Wonga said it would do so by email.

Although all week Wonga’s website told customers it would be in touch “by 10 October”, it was late Friday afternoon before the message was updated to say that emails had finally been sent out.

Borrowers who have used the company since its launch in 2007 had been in limbo since the news of the write-offs broke last week. One Wonga customer said he did not know whether he should pay an instalment of a repayment plan he had entered with the firm or risk accruing more charges if he was judged not to qualify for a write-off.

Wonga said on Friday it had contacted the 375,000 affected customers to let them know what they needed to do next. It urged customers it had contacted not to involve a third party with their case.

The email from Wonga to the customers affected explained that the company “will automatically clear any outstanding debt you have with us” by the end of October. “You do not need to do anything.”

It added: “We recognise that we may not have always made the right lending decisions and for this we apologise. We intend to be sure in the future that we only lend to customers who can reasonably afford to repay their loans.”

As well as writing off loans at a cost of £220m, Wonga has been forced to scrap its affordability checks and is working on new lending criteria scrutinised by the FCA.

Customers caught up in the action have been assured that details of their loans will be removed from their credit files. The fact that they applied to borrow will still show up.

Wonga has also agreed to contact the remainder of its 1 million customers, informing those who are not affected that this is the case. The regulator said there was no timeframe for this, but it expected notices to be given as quickly as possible.

Discussions between the firm and FCA are continuing, and many borrowers are hoping that redress will be extended to those who were able to keep up with repayments, even though they should not have been offered a loan.


Payday loans shaken up by competition regulator | Business | The …

Payday lenders will be forced to give details of their products on price comparison websites to help potential borrowers shop around under new competition rules for the sector.

The Competition and Markets Authority (CMA) said payday lenders’ customers find it hard to get clear information on the cost of borrowing. Letting them compare deals online will increase competition and make it easier for new lenders to offer better prices, the CMA said.

The regulator will also require payday lenders to be clearer about their fees and charges, make it easier for borrowers to shop around without hurting their credit record, improve data sharing between lenders and oblige them to give borrowers a summary of charges.

The proposals follow a price cap announced in July by the Financial Conduct Authority (FCA) that limits repayments to no more than double the sum borrowed. The CMA said it wanted to make sure the cap did not stifle competition by setting a going rate for all lenders.

The FCA estimated that payday lenders issued 10m loans worth £2.5bn last year. The sector grew rapidly during the recession, but politicians and campaigners have attacked lenders for preying on vulnerable customers and charging high interest rates that risk their borrowing getting out of control.

Wonga, the biggest online payday lender, was ordered last week to write off £220m of loans to 375,000 people that it admitted should never have been granted. The advertising watchdog has also banned Wonga from using an advert that fails to mention its 5,853% annual interest rate.

Simon Polito, the chair of the CMA’s payday lending investigation group, said: “Greater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers don’t generally shop around and competition on price is weak.

“Lower prices from greater competition would be particularly welcome in this market. If you need to take out a payday loan because money is tight, you certainly don’t want to pay more than is necessary. Given that most customers take out several loans in a year, the total cost of paying too much for payday loans can build up over time.”

The CMA also recommended that lead generator websites selling potential borrowers’ details to lenders should be clearer about their activities. Many borrowers think the sites are lenders rather than middle-men and do not understand that they sell customers’ details to lenders for fees.


Payday lenders should wipe out loans in wake of Wonga ruling …

Thousands of people who have taken out payday loans from firms other than Wonga should also have their interest and charges wiped out, say consumer and legal experts.

This follows the announcement on Thursday that the payday lender was forced by the Financial Conduct Authority, the new City regulator to write off £220m of loans to 375,000 borrowers after the firm admitted those people should never have been given loans.

The company, which charges annualised interest rates of up to 5,853% a year and has been accused by MPs of “legal loan sharking”, said it would entirely wipe out loans to 330,000 people, and scrap interest and charges owed by a further 45,000 customers.

Wonga is the biggest online lender in the payday loan sector with about a 30-40% market share, but there are around 90 other lenders including Dollar Financial UK (the parent company of brands that include The Money Shop, Payday Express and Payday UK), CashEuroNet, QuickQuid, Peachy and Sunny. In 2012 the volume of loans lent between them was £10.2m, according to the CMA.

Wonga was required to write off the debts because the FCA found that it had granted the loans without checking people could afford the repayments. But a number of experts who deal with complaints about the payday loan sector have told the Guardian that the affordability tests carried out by many of these other lenders are as bad or worse than Wonga’s. This could potentially open the floodgates to thousands of payouts to other borrowers.

“If this redress package is required of Wonga then what of the other payday lenders in the country?” said Mike Dailly, consumer rights campaigner and principal solicitor at the Govan Law Centre in Glasgow. He also sits on the FCA consumer panel. “From my experience as a lawyer helping consumers there is no doubt in my mind that other payday lenders have failed to comply with the affordability criteria laid out in the Consumer Credit Act in the way that Wonga did.”

He added: “It is likely now that other lenders in the sector who want a future will have to come clean or face action from the FCA.”

Dollar Financial said: “Our UK companies have been working closely with various stakeholders including our regulators to ensure that we offer compliant and responsible products to all of our customers.”

Although the FCA has stopped short of saying that it is proactively investigating other firms, Clive Adamson, director of the supervision at the watchdog said that the action it had taken against Wonga should “put the rest of the industry on notice” and that “some firms still have a way to go to meet our expectations.”

“We have long called for more responsible affordability checks and better advice,” said Which? executive director Richard Lloyd. “The next step must be a clamp down on excessive fees and charges across the board to show lenders that the FCA will continue to clean up the credit market.”

People who have already paid off loans, including those from Wonga, may also be in line for redress if it can be shown that they should never have been lent to in the first place, say experts.

A number of these people were only able to repay the loan with help from friends or family or by borrowing elsewhere, while others are still paying off the loans through repayment plans set up by debt charities and organisations like Citizen’s Advice.

Wonga said that it would be contacting all those affected by 10 October and that this included those whose debt had been sold to a third party or had been entered into an individual voluntary arrangement or a debt management scheme. However, it would not be drawn as to whether former customers would be contacted.

“We’ll work with the FCA to identify if any further remedial action is required and will communicate details, if appropriate, in due course,” it said in a statement.

There are fears that claims management companies, best known for handling PPI claims, will try to entice payday loan borrowers to make a claim using their services. Borrowers who go down this route will typically be asked to pay an upfront fee to the claims management company.

“If people are contacted by claims management companies or solicitors offering to recoup their money for free, we would say hold fire as discussions are still gong between Wonga and the FCA,” the Financial Ombudsman Service said.

It urged anybody who has a payday loan and thought they might be affected not to stop making repayments until the situation became clearer.


Payday Loan Startup That Promised to "Kill" Finance Now Total …

Image kprtsijphiri4faqvjds.jpg

In 2009, Sarah Lacy, then a writer for TechCrunch, set the gold standard for startup hype in a write-up about Wonga, a payday loan company that just might “upend the world’s financial institutions.” Today, Wonga is about as hated as Wall Street and was just forced to write down £220m of debts for 330,000 customers because the loans were unethical.

Even God is mad at Wonga.

The company is based in London, but the list of venture capitalists who invested $145.4 million over the years includes Silicon Valley stalwarts like Accel Partners and Greylock. Wonga’s other investors are prominent in Europe. Local reports of its implosion have been relatively mild, but Wonga’s misdeeds are pretty spectacular.

In May, Wonga’s CEO stepped down after a scant six months on the job. In July, Andy Haste as chairman, hoping his “blue chip financial credentials” might be able to make people forget that the company sent out fake legal letters to scare borrowers who had trouble paying back their loans:

The UK’s biggest payday lender has been without a permanent chief executive or chairman since its co-founder Errol Damelin quit as chairman in June last month. Damelin’s departure, seven months after he stood down as chief executive, came just before the financial regulator ordered the payday lender to pay £2.6m in compensation for misleading customers by issuing letters to struggling borrowers under the name of fake legal firms.

The Financial Conduct Authority said Wonga had been guilty of “unfair and misleading debt collection practices” after it emerged the lender had made up the companies to threaten legal action against customers.

The Law Society has called for a criminal investigation but Haste said Wonga had not been contacted by police. “As of today we are not under criminal investigation and our whole focus is working with our regulator to pay compensation to customers in a timely manner.”

Wonga attracts high interest from City of London policeWonga attracts high interest from City of London policeWonga attracts high interest from City of London p

The lender says the issue is ‘historic’ but the Law Society has asked the police to…Read moreRead on

The write-down as well as new “affordability checks” were part of a “voluntary agreement” with the UK’s Financial Conduct Authority about Wonga’s lending practices, reports the BBC.

The company, which has faced criticism for its high interest rates and debt collection tactics, made the changes after discussions with regulators.

Customers in arrears whose loans would not have been made under the new checks will have their debts written off.

A further 45,000 customers in arrears will not have to pay interest on loans.

The BBC said Wonga lends money to roughly a million customers a year. In July, Haste promised to enforce stricter criteria. The process sounds corrupt from start to fake letter finish. Take this example from a 20-year-old customer named Elliott Gomme who easily gamed the system to get £120 to go on vacation by claiming that he worked full-time:

“My bank couldn’t give me an overdraft or anything, and so I went to [Wonga],” he says.

He received his money and went on holiday, but a few weeks later he says the firm started calling him and he says they were “constant”.

“They were ringing me every day,” he says. “They were telling me how much I owe and that there was added interest.”

Elliot says that a few months later he was being told his debt had risen to more then £800 and it began to affect his day-to-day life.

Reporters are no better than investors at picking which startups will succeed. We’ve all made wrong calls. But what’s so strange about TechCrunch’s post from 2009 is that Wonga was already controversial, a fact Lacy noted and dismissed:

Wonga: How the Net Should Kill the Finance Industry | TechCrunchWonga: How the Net Should Kill the Finance Industry | TechCrunchWonga: How the Net Should Kill the Finance Industr

What’s awesome about the Internet is how it breaks up monopolistic markets where middlemen unfairly …Read moreRead on

Critics have said that Wonga is usurious by charging a 1% interest fee per day. But that’s a knee-jerk response. […]

Sure, you can say Wonga is dangerous because it’s giving people an easier way to live outside their means. But that’s a bit like arguing giving kids condoms encourages teenage sex. You can’t change human behavior, but you can help make people safer.

Now here’s the downside on Wonga: It’s only available in the UK . . .

Tech bloggers must be humans because you can’t change their behavior either.

To contact the author of this post, please email

[Image via Associated Press]


Toxic finance: Reckless payday lender Wonga wipes mountain of …

Image wonga-fca-payment-public.si_.jpg

Toxic finance: Reckless payday lender Wonga wipes mountain of debt

Published time: October 02, 2014 14:55 Get short URL

Reuters/Luke MacGregor











Thousands of customers who took loans with controversial pay day lender Wonga are to have their debts written off, in an action expected to cost the ‘legal loan shark’ more than 200 million pounds.

The company will wipe the debts of 330,000 customers who are trapped in arrears of 30 days or more, while a further 45,000 customers will get to repay their loans exempt from interest.

The move is a “consequence” of Wonga’s discussions with the Financial Conduct Authority (FCA), who said the firm “was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.”

The FCA also said that Wonga did not do enough to vet customers and their ability to pay back the interest incurred on loans, which can be higher than 5,000 percent.

As a result, a large number of Wonga customers were forced to admit they were unable to pay the company back after taking out a short-term loan.

“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,” said the FCA’s Director of Supervision Clive Anderson.

“They [lending companies] need to lend affordably and responsibly,” he added.

Last month, the payday lender recorded a profit loss of 53 percent – one of the largest slumps in its operating history.

The lender revealed its pre-tax profit in 2013 was 39.7 million pounds, down from 84.5 million the previous year.

Wonga said the fall was due to “remediation costs” – money that it had to pay back to its customers – including 2.6 million pounds it had to pay out to more than 45,000 customers after it delivered debt collection letters from non-existent law firms.

However, Wonga did record a 15 percent rise in the number of loans issued between 2012 and 2013, worth 4.6 million pounds.

Wonga’s Chairman Andy Haste told British media there was a “real and urgent” need for change.

He also told the BBC it expected to be “smaller” and “less profitable” following increased FCA regulations, which include more stringent background credit checks.

“Our regulator is determined to improve standards in consumer credit and I share that determination,” he said.

“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.

Labour MP John Mann called for Wonga to be brought before Parliament’s Treasury Select Committee to “explain how they lent so much money to people it knew could never afford to repay it.”

“Sadly, it comes as no surprise to learn that Wonga knowingly lent money to people who will never be able to afford to repay a loan and it is morally right that they have been forced to write off these loans,” he added.

This is not the first time Wonga has come under heavy criticism for its practices.

Since July, the firm has not been allowed to produce advertisements designed to attract young people, such as its campaign that used puppets, screened during children’s television programming – an attempt to soften the brand, critics allege.

In 2012, Wonga was also forced to apologize to Labour MP Stella Creasy after she received personal abuse via Twitter, calling her “nuts,” “pathetic” and “a raving self-publicist.”

The MP has long been outspoken on payday loan companies, and has lobbied the government to set a cap on the amount customers can be charged for small, short term loans.

While the MP welcomed the fall in Wonga’s profits, she said the rise in the number of loans being issued should be a cause of concern.

“The fact that they are reporting a 15 percent increase in customers for this toxic form of finance reflects that there are still millions of people for whom there is too much month at the end of their money,” she told the Financial Times.

Under new rules issued by the FCA, payday lenders will not be able to reclaim debts directly from customers’ bank accounts, while a cap of 0.8 percent interest per day has been proposed for short term loans.

According to the UK’s Public Accounts Committee, around 2 million people in the UK used payday loans, while the Office of Fair Trading believes around 1.8 billion pounds is loaned in high cost plans each year.