Wonga absolves 333,000 customers of £220m worth of debt
Heavily maligned payday lender, Wonga, has set out to repair its tattered reputation and has laid out a series of radical measures to this end.
The payday company that propagated the slogan ësometimes you need some extra cashí have agreed to wipe 330,000 debtors slates clean to the tune of £220m, and has expressed regret at giving them out in the first place. This works out at an average saving of £667 per borrower.
Todayís announcement marks a watershed moment for a company which is clearly seeking to restore consumer confidence in its operations. And though blueprints for top-down customer consideration and a ëGood Samaritaní recompense programme are but early stages in a gargantuan overhaul, newly instated chief executive Andy Haste can be commended for his hands-on attitude.
ìWe are taking action to address the failing of the past,î Haste said. ìThis business had been too focused on growth
and cared more about the loan outcome than the customer outcome.
ìWe are clearly very sorry for whatís happened to our customers and are doing everything to put that right.î
The £220m set to be collectively refunded is over five and a half times more than its yearly pre-tax profits, and is the second sizeable disbursement made by Wonga in the past 2 years, following the £18.8m paid out in lieu of the shameful fake letter scandal of 2013.
Wonga has held talks with the Financial Conduct Authority (FCA) FCA over its planned business model, and the reparations it will distribute, after the city regulator took issue with the payday lenderís lending procedures. To break down the numbers, borrowers who have possessed outstanding debts for 30 days or longer will be completely pardoned, whilst 45,000 individuals who have been in debt for under 30 days will still have to pay back the sum borrowed but will not be subjected to any interest.
FCA shows strength in their handling of the matter
Anti-payday campaigners will celebrate the news, and with good reason as it is the efforts of these tireless activists, combined with Wongaís own consistent brushings with disgrace, that has brought the issue to the forefront of the FCAís thinking.
The FCA ascertained that Wonga was dishing out loans thoughtlessly to borrowers with no regard for their financial capability to make repayments. Instead, Wonga vicariously encouraged this type of irresponsible lending, using bold formatting and eye-catching graphics to play on struggling individualís desperation for a swift payday. Once entwined within Wongaís web, these borrowerís soon found themselves swamped by stupendous interest rates rising over 5000% in some cases.
But it is one thing to recognise a problem, and a whole other kettle of fish to coerce an offender into admitting their wrongdoings and then pledge to make proper amends. The key players in Wongaís past operations are now no longer involved in the companyís proceedings, and given Errol Damelinís, former founder and CEO, laughable remarks last year, this bodes well for Wongaís future prospects.
An excerpt from Damelinís spiel in Wongaís 2013 annual report read as: ìAccess to practical and affordable sources of credit is a big issue for our society and Wonga is playing a part by lending responsibly, and at scale, to people who can generally afford to pay us back quickly.î
In light of present day findings, such barefaced deception will not be missed in Wongaís bid for respectability under financial heavyweight, Mr Haste.
It has transpired that not only can a number of Wongaís clientele generally not ëafford to pay Wonga back quicklyí, but many literally have no chance of ever becoming debt-free due to their financial prospects. Mr Haste has denounced the previous regimeís affordability checks as ënot sufficiently sophisticated or strong enoughí ñ a diplomatic stance to take; given the scale of their negligence one can be excused for believing there were no affordability checks being made.
The FCA are still in talks with Wonga over the prospect of retrospective compensation, which could be afforded to its borrowers who have climbed out arrear but ought never to have been given loans to begin with. Other measures to be enacted include a 30-day freeze on applicants whoíve been rejected from applying for another loan immediately, which was previously the case. Moreover a shift in its lending standards towards a greater focus on a borrowerís ëloan-incomeí ratio when consider applicantís eligibility.
Wonga has conceded that it will experience a massive drop in business as a result of both its new lending practices and the ignominy its name is drenched in, however its commitment to regulatory authorisation in order for its practice to be legitimated in consumerís minds is certainly the wise course of action. The challenge of a lending rate cap, to be enacted next year, will be a strain on Wongaís long term viability but Haste will plan towards that and seek to ride that hurdle when it comes. One thingís for certain, the pseudo-loan shark reputation needed to go, and to that end Wonga have made progress.
But the payday market remains heated, and the FCA will have to show more strength in its crackdown on Wongaís competitiors.
To that end, John Mann, Labour MP for Bassetlaw on the Treasuryís select committee, has called for Wonga to appear in parliament to explain its strategies in detail for policymakerís future reference.
ìI welcome todayís 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,î he said.
ìSadly, 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 Wongaís senior management to appear before the committee to explain their actions.î