#AceFinanceNews – BRITAIN – October 03 – Payday lender Wonga says it is writing off £220m of debts for 330,000 customers after putting in place new affordability checks.
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.
Affected Wonga customers will be notified by 10 October.
Wonga’s chairman Andy Haste, who joined the company in July, said a review of lending practices had shown the need for change at Wonga was “real and urgent”, and new stricter lending criteria would mean “accepting far fewer applications from new and existing customers”.
‘ Too High interest Rate to LTV causes Customer Debts to be written off for Wonga ‘
Back in 2013 a visit to Wonga.com, the website of the fast-growing online payday lender, is a seductive experience. “We know you just searched for payday loans – you might be glad you found us! We are different …” With Wonga, the borrower is saved the indignity of queuing at a high street store such as Money Shop or Cash Converters, or the intrusion of a doorstep lender calling at their home. “Wonga is super fast, convenient and flexible too – unlike most payday loans. You can apply online in minutes and usually get a decision promptly – no faxing, no meetings and no hanging on the phone listening to cheesy lift music … once approved we will send your money within 15 minutes.”
In some respects, however, Wonga is all too similar to other lenders targeting high-interest loans at financially stretched borrowers. In 2011 it was forced to write off almost £77m of bad loans – despite claims to be a responsible and “truly selective” lender.
Founder and chief executive Errol Damelin portrays the typical Wonga customer as a creditworthy borrower seeking speed and convenience – perhaps like Kweku Adoboli, the rogue trader who almost destroyed UBS, who, it has emerged, turned to Wonga.com to cover spread-betting losses– rather than someone at the limits of conventional sources of short-term credit such as bank overdrafts and credit cards.
On the Wonga website, Damelin tells prospective borrowers: “Part of responsible lending for us is being truly selective and making sure … we are using all the data we can possibly get to help us make the best decision as to whether you can afford the credit and whether it’s really good for you at the moment.