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article imageWonga’s financial woes mount after FCA clampdown

By Simon Crompton     Oct 8, 2014 in Business
Up to a million customers of the payday loan company Wonga could have their debts and late fees cancelled or reduced following an investigation by the Financial Conduct Authority.
Wonga, Britain’s largest payday loan provider, has announced it is writing off £220 million in debt after the Financial Conduct Authority (FCA) found that it was not conducting proper checks to ensure the recipients could pay the loans back. The write-offs will affect up to 330,000 borrowers and will have the greatest impact on people whose accounts are more than 30 days in arrears. Wonga has been charging interest rates of up to 5,853 percent a year.
“Wonga is not the bad apple - the industry is a rotten barrel,” said Labour MP Stella Creasy to the Daily Mail. “There have been 5 million people borrowing from payday lenders and it was about a fifth of Wonga customers that were affected.”
To add to its money woes, Wonga announced that its founder Errol Damelin sold back his 1 percent share of the company for £4 million. It is believed that Damelin was just one of many employees to sell their shares back to the company.
Not all companies in the payday loans industry is struggling. Buddy Loans continues to provide a thriving business model.
When the £220 million refund to their customers was announced, Wonga's new 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.”
Haste continued, “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.”
As part of their agreement with the FCA, Wonga has entered into a voluntary requirement (VREQ) that requires it to make significant changes to its business immediately. This VREQ also means that Wonga will have to ensure that customers can afford to take out loans. Citizens Advice is supporting the FCA’s actions and that other payday lenders will recognize that changes are coming to the industry.
“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,” said Clive Adamson, the FCA’s director of supervision in an interview to the Lincolnite.
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