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Wonga to write off debts of 330,000 customers
In an unprecedented move, Wonga has today announced that is to write off the debts of around 330,000 customers who are in arrears of 30 days or more.
The controversial UK payday lender has, for some time, been battling a negative public image that has seen it portrayed as something of a ‘predator on the poor’ in certain sections of the media. Wonga was embroiled in its most major scandal yet in June of this year, when it was revealed the Financial Conduct Authority (FCA) had ordered the company to pay £2.6m (approximately $4.1m) in compensation to 45,000 customers who had received threatening letters on behalf of Wonga from non-existent solicitors firms. Given this perception of Wonga, today’s announcement comes as something of a surprise.
Not only will Wonga write off the debts of around 330,000 customers who are in arrears of 30 days or more – rumoured to total £220m (approximately $344m) – but it has also pledged to support for other customers. Customers who are up to 29 days in arrears as of October 2, 2014 will still have to repay the capital they have borrowed, but all their charges and interest will be written off and they will also have the option of repaying over an extended period of four months.
So, why the sudden departure from its ‘predator on the poor’ image?
On the surface, the answer to this question seems unclear. Is it because the payday loans company wants to improve its image in a bid to make itself more attractive to potential borrowers? Has it decided it stands a better chance of recouping at least some money if it asks only for capital to be repaid, thus aiding cash flow? Or have regulators ordered a change?
While it must be made clear that Wonga has not claimed otherwise, the truth appears to lie in the latter: regulator intervention. Wonga itself described the move as “a consequence of discussions with the FCA.”
The FCA assumed responsibility for the oversight of UK consumer credit in April 2014 and requested information on Wonga’s lending volumes and practices, eventually coming to the conclusion that the company was “not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner,” and this appears to be behind today’s move.
In November 2013, the Office for Fair Trading (OFT) estimated the UK payday loans industry to be worth around £1.8bn (approximately $2.8bn) a year and so this seemingly enforced move by its most high profile player will no doubt send shockwaves through what is undoubtedly a booming industry.
Whether or not it will spell the end of payday loans is another question entirely.
For top level data and analysis on the UK retail lending market, check our Industry Profile at : http://store.marketline.com/Product/united_kingdom_retail_lending?productid=MLIP1190-0007