Wonga enters into a voluntary requirement agreement (VREQ), with the Financial Conduct Authority (FCA) that requires Wongo to make significant changes to its business immediately
Today, 2nd October 2014, the Financial Conduct Authority (FCA) has finally shown it has some teeth forcing Wonga to write off a staggering 330,000 payday loans which are currently in excess of 30 days in arrears, following a rap over the knuckles by the regulator the FCA after the controversial payday lenders historic bad lending practices. Another 45,000 customers who are between 0 and 29 days in arrears will now be asked to repay their debt without any interest or charges and be given an option of paying off their debt over an extended period of four months.
Wonga’s lending practices damaged reputation and financial loss is self-inflicted as the lender had carried out inadequate affordability assessments when granting loans, which should have stopped the loans being granted in the first place. The cost to Wonga is estimated to be in the region of £220 million or £666 per affected customer.
Wonga will be contacting all customers by 10 October to notify them if they will be included in the redress programme. Customers should now continue to make payments unless they are told to stop by the firm. Borrowers who are experiencing financial difficulty, should contact Wonga to discuss their options.
The FCA will continue to work with Wonga to identify whether there is any other remedial action required. If necessary, further details will be communicated by the firm in due course.
Clive Adamson, director of supervision, said: “We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations. This should put the rest of the industry on notice – they need to lend affordably and responsibly.”
“It is absolutely right that Wonga’s new management team has acted quickly to put things right for their customers after these issues were raised by the FCA.”
Effective today, Wonga has introduced new interim lending criteria that should improve customer outcomes. It is also working to put in place a new permanent lending decision platform as soon as possible. The FCA has also required Wonga to appoint a Skilled Person to monitor the new lending decision platform to ensure it has the desired effect; the Skilled Person will report to the FCA and give an independent view of the firm’s activities.
Wonga’s Chairman, Andy Haste said: “When I joined Wonga I was made aware of concerns the FCA had already expressed around affordable lending, concerns which I shared. I committed to ensuring our lending is conducted in a responsible and transparent manner, delivering the best outcomes for our customers. I also said this would lead to a tightening of Wonga’s lending criteria and we will now be accepting far fewer applications from new and existing customers.
“We want to ensure we only lend to those who can reasonably afford the loan in question and during my review, it became clear to me that this has unfortunately not always been the case. I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.
“It’s clear to me that the need for change at Wonga is real and urgent. Our regulator is determined to improve standards in consumer credit and I share that determination. There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.”
Wonga will now work with a third party, appointed in conjunction with the FCA and responsible for reviewing the implementation of the new lending decision engine to ensure it is delivering appropriate outcomes for customers. The company said the implementation of new lending criteria meant it would be accepting significantly fewer loan applications and that it expected some existing customers would no longer be able to use the service.
From today, the company has improved the online information it provides on debt and money advice, both at the application stage and when someone is declined. Mr Haste has also written to the free, independent and impartial debt charities to explain the changes and the company’s new approach to lending.