Wonga writes off debts for 330,000 customers
Chief executive apologises to customers as payday lender writes off £220m of debts and interest costs
The controversial payday lender Wonga is writing off £220m of loans to 330,000 people, admitting that it should never have lent to them in the first place.
The company, which MPs have accused of “legal loan sharking”, said it would entirely wipe out the loans, and scrap interest and charges owed by a further 45,000 customers.
Wonga’s new chief executive, Andy Haste, said the company had been wrong to lend the money to people that could not afford to pay it back.
“We are taking action to address the failing of the past,” Haste said. “This business had been too focused on growth and cared more about the loan outcome than the customer outcome.
“We are clearly very sorry for what’s happened to our customers and are doing everything to put that right.”
He said Wonga had lacked experience credit professionals and “lent to people we should not have lent to”.
“The checks were not sophisticated enough and not strong enough,” he said.
Wonga’s action came after the City regulator, the Financial Conduct Authority (FCA), “raised concerns about our lending practices”, he added.
Wonga will write off the outstanding debts of 330,000 people who are more than 30 days in arrears, and let a further 45,000 people who are less than 30 days in arrears as of 2 October to pay back their loans without interest or charges. The customers affected will be notified by 10 October. Wonga estimated that the writeoffs will cost it about £35m as it has already taken provisions against many of the loans.
Haste, a respected City veteran who joined the company in the summer, said he would “not apportion blame” on Wonga’s founder Errol Damelin, who quit the firm in June.
John Mann, a Labour MP on the Treasury select committee, said Wonga should be called before parliament urgently to explain its “underhand tactics”, which he said disproportionately affected poor people.
“I welcome today’s latest step by the FCA to crack down on irresponsible payday lenders and this is a company that has taken advantage of people in dire financial circumstances,” he said.
“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.
“I have written to the chairman of the Treasury select committee asking that he summons Wonga’s senior management to appear before the committee to explain their actions.”
The action has come about because Wonga was granting loans to borrowers without checking that they could afford to make the repayments. The company boasts on its website that it will pay the money into customers accounts within five minutes of the loan being approved.
It is understood that the checks the lender was making were so poor that many of its borrowers had no chance of ever repaying the loan because of the dire financial situation they were already in.
The FCA and Wonga are continuing to look at whether any other customers might be affected. It is understood that this could include former Wonga customers who managed to pay off their loans but should never have been lent to in the first place. If these customers were identified, it could lead to another huge bill for the company.
Wonga has also changed its lending criteria with immediate effect. It said that from now on there would be greater scrutiny of “loan to income ratio”.
It will also put a “30-day freeze” in place for people who have been in arrears before or have been rejected for a loan. Previously someone who had made late repayments but then paid off a loan could immediately apply for another one. A potential customer Wonga rejected could also immediately reapply. Now both sets of people will be barred from reapplying for 30 days.