Wonga, the payday loans company, will write off the debts of more than 330,000 customers after agreeing a forbearance plan with the Financial Conduct Authority (FCA).
Wonga has agreed that:
- 330,000 customers who are currently in excess of 30 days in arrears, will have the balance of their loan written off and will owe Wonga nothing.
- 45,000 customers who are between 0 and 29 days in arrears will be asked to repay their debt without interest and charges and will be given an option of paying off their debt over an extended period of four months.
The comes from Wonga’s new management team who were brought in after a fake legal letter scandal. They agreed the plan after FCA took over regulation of consumer credit in April 2014 finding that “Wonga was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.”
Wonga will be contacting all customers by 10 October to notify them if their debts or interest will be written off.
Responding to the news David Mann, Head of Money at uSwitch.com, says: “This is a great victory for consumers. However, questions remain about why these customers were put in this vulnerable position in the first place.
“The new affordability criteria put in place by Wonga goes some way to address these questions as payday lenders need to have the same controls in place as banks and building societies before issuing credit.
“Today’s news doesn’t solve the escalating need for short term loans. Those most in need of money, often with poor credit ratings, have been turned away from the banks and left to feel they have no other option. There is a bigger question that needs to be asked around the growing need for short term credit.”
Responsible affordable lending
Clive Adamson, director of supervision at the FCA, said: “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.”
However, he implied that the payday loans industry will have more changes to come and this is just the start of a wider clean-up to the consumer credit industry:
“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.”
Payday loans; easy money, no questions asked?
Whilst quick and easy, payday loans can be a very expensive way of borrowing money. The representative APR frequently runs into the thousands, but their relatively relaxed lending criteria and speed of lending means payday loans have been boomed in recent years.
The FCA has also reviewed Wonga’s lending criteria and imposed interim measures to ensure that their future loans are affordable.
Cheaper alternatives to Payday loans
Personal loans can be cheaper for borrowing larger sums of money to be paid back over a longer period, but they have fixed monthly repayments that will need to be met until the loan is fully paid off.
If you are in difficulties you should seek independent financial advice.