Wonga dithers over writing off improperly granted loans

beggers October 11, 2014 0
Wonga dithers over writing off improperly granted loans

Wonga customers are anxiously waiting to find out whether they are among the 330,000 borrowers having their payday loans written off.

The UK’s best-known payday lender has been forced to refund borrowers after the City regulator discovered it had lent money without making sure borrowers were able to make repayments.

Those who should never have been given loans and have fallen more than 30 days behind with repayments will have their debts wiped entirely, while a further 45,000 who are up to 30 days in arrears will have their interest and charges waived.

Wonga has been the subject of growing controversy for making loans of up to £1,000 in a matter of seconds, often to borrowers who ended up taking out further loans to pay off their debts.

Although it claimed that an algorithm checked between 6,000 to 8,000 “data points” for each online application and was a better indication of borrowers’ ability to repay a loan than traditional credit scoring checks, information it supplied to the Financial Conduct Authority (FCA) confirmed claims by debt charities and campaigners that Wonga was not properly ensuring that customers could afford to meet their commitments.

The FCA gave the firm, which quotes an annual interest rate of 5,853%, until the end of Friday to contact those affected by the inadequate affordability checks and Wonga said it would do so by email.

Although all week Wonga’s website told customers it would be in touch “by 10 October”, it was late Friday afternoon before the message was updated to say that emails had finally been sent out.

Borrowers who have used the company since its launch in 2007 had been in limbo since the news of the write-offs broke last week. One Wonga customer said he did not know whether he should pay an instalment of a repayment plan he had entered with the firm or risk accruing more charges if he was judged not to qualify for a write-off.

Wonga said on Friday it had contacted the 375,000 affected customers to let them know what they needed to do next. It urged customers it had contacted not to involve a third party with their case.
The email from Wonga to the customers affected explained that the company “will automatically clear any outstanding debt you have with us” by the end of October. “You do not need to do anything.”
It added: “We recognise that we may not have always made the right lending decisions and for this we apologise. We intend to be sure in the future that we only lend to customers who can reasonably afford to repay their loans.”

As well as writing off loans at a cost of £220m, Wonga has been forced to scrap its affordability checks and is working on new lending criteria scrutinised by the FCA.

Customers caught up in the action have been assured that details of their loans will be removed from their credit files. The fact that they applied to borrow will still show up.

Wonga has also agreed to contact the remainder of its 1 million customers, informing those who are not affected that this is the case. The regulator said there was no timeframe for this, but it expected notices to be given as quickly as possible.

Discussions between the firm and FCA are continuing, and many borrowers are hoping that redress will be extended to those who were able to keep up with repayments, even though they should not have been offered a loan.

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