Wonga, the controversial payday lender, is writing off debts of 330,000 clients and interest charges on 45,000 others, for a total of £ 220million.
1. What exactly is Wonga doing?
He agreed to write off all debts of 330,000 customers who were 30 days or more overdue. Another 45,000 customers who are late in repaying their debts for up to 29 days (as of October 2) will have all interest and other charges waived. They will still have to repay their debt, but Wonga will give them the option of paying over an extended period of four months. In total, out of the 375,000 customers, Wonga will write a debt of £ 220 million.
2. Why is he doing this?
Wonga doesn’t do this out of the goodness of her heart. These loans should never have been granted in the first place, as they do not meet new lending criteria agreed with the city’s regulator, the Financial Conduct Authority (FCA). Indeed, Wonga gave money to borrowers who were never able to repay it.
3. What prompted Wonga to make this surprise decision?
It followed discussions between the payday lender and the FCA. The regulator said in a statement that Wonga “was not taking adequate measures to assess the ability of customers to cope with repayments in a sustainable manner.” Clive Adamson, Director of Supervision at FCA, added, “We are committed to raising standards in the consumer credit market and it is disappointing that some companies still have a long way to go to meet our expectations. “
4. How will this affect the business?
Wonga will suffer a blow of £ 35million – just days after its profits were more than halved to £ 39.7million last year. He has already paid £ 18.8million in ‘repair costs’ after sending bogus letters from lawyers to late-paying clients. The company has also introduced new interim loan criteria, which means it will accept significantly fewer loan applications and some existing customers will be barred from reapplying for a loan for 30 days.
5. What are payday loans anyway?
These are short-term loans, typically a few hundred dollars, which are typically used to make people wait until they get their next paycheck (an alternative to an unauthorized overdraft). These are usually emergency loans, like when an unexpected big bill arrives in the mail or someone suddenly has to fork out for a new washing machine. But the loans carry exorbitant interest rates.
6. What is the scope of these loans?
It is estimated that around two million people in Britain use payday loans. And, contrary to some expectations, borrowers are not just unemployed people or people without a bank account. The Office of Fair Trading described the typical borrower as “a young man, earning over £ 1,000 a month and in rented accommodation. Many are single and have no children ”.
7. What other options do people have if they cannot borrow from traditional lenders?
Credit unions and community banks are ethical alternatives that charge much less than payday lenders.
8. How will I know if my loan or my interest with Wonga will be written off?
Affected customers will be contacted before October 10.
9. What was the reaction?
There are calls for Wonga to be recalled to Parliament to explain to the Treasury Committee what went so wrong. There are also suggestions that action should be taken against Wonga founder and former CEO Errol Damelin.