Wonga is offering write-offs to 375,000 of its current customers because its affordability assessments have been inadequate.
This was agreed with its regulator, the Financial Conduct Authority (FCA) and announced on 2nd October 2014. Wonga has agreed to make significant changes to its business immediately to try to prevent these problems happening in future.
Who is being compensated?
The Wonga customers who will get help are those who are already in arrears to Wonga:
- 330,000 customers are more than 30 days in arrears will have the balance of their loan written off and will owe Wonga nothing;
- 45,000 customers who are in arrears but by less than 30 days, will have the interest and all late payment charges removed from their debt so they only repay what they have borrowed. They will be given an option of paying off their debt over an extended period of four months.
Those are huge numbers. They are a stark illustration of the problems for society that have been caused by the growth in the payday loan industry over the last few years.
Are you affected? What will happen to your credit record?
Wonga will contact all its current customers by 10 October 2014 to say if they will benefit from these provisions. Until you are contacted by Wonga, you should carry on making repayments.
If you are in financial difficulties at the moment, contact Wonga immediately to discuss your options.
Experian have explained what will be happening to your credit record if you get one of these write-offs:
The result is that [Experian] are completely removing all record of these loan accounts from customers’ credit reports. A record of the loan application being made will remain but this will not show whether the loan was accepted or refused.
Most customers should be very happy with this result. It doesn’t give you a completely clean credit file as the payday loan application itself is regarded as a problem by many mainstream lenders, including mortgage lenders. But few people with a defaulted Wonga payday loan will be in a good position to apply for a mortgage, so this isn’t that important.
Why this is happening – affordability checks and irresponsible lending
Before a loan is given, a lender should assess if it is affordable for the customer. A loan is only affordable if you can repay it on time, without hardship and without having to borrow again. Giving loans which the lender knows (or ought to know) are not affordable is an example of irresponsible lending.
The FCA is taking over regulating payday lenders this year, but this definition of affordability was also used by the OFT, the previous regulator.
The reason the FCA decided Wonga needed to make changes was that too many customers were rolling over loans. Whilst there will always be a few clients whose circumstances change so they cannot repay debts, the large number of rollovers suggested that Wonga was not performing good enough checks that the initial loan could be afforded.
Wonga’s lending criteria are to be changed so that it takes, in the words of the FCA’s announcement:
adequate steps to assess customers’ ability to meet repayments in a sustainable manner.
Wonga’s website now says
“we’re only interested in lending to people whom we believe can comfortably afford to repay us on their chosen repayment date” and“you shouldn’t use our service to manage existing debt or if you’re feeling the strain financially”.
Wonga is probably hoping that their clients don’t read those bits! It’s hard to see how they and other payday lenders could continue to be profitable if they only lend to people who can easily afford to repay and whose finances aren’t strained.
Update – Sunny also sends some refunds in June 2015
In June 2015 another payday lender, Sunny, sent a letter to some borrowers saying it was going to refund them.
In January 2015 I suggested that many more payday borrowers could get compensation because the loans they were given were “unaffordable”, so I wasn’t surprised at Sunny’s decision.
Sunny says it has made changes to how they “consider and use data in respect of income and expenditure”.
In other words, Sunny has been offering loans to some people who simply wouldn’t be able to repay them, because they didn’t have enough spare income each month. This is the “affordability” issue – the reason why Wonga was made to refund millions to its borrowers in 2014.
Sunny are writing off the balances of some customers and refunding interest that has been paid on these loans.
Update – 2016 – payday loan refunds take off!
There are now thousands of comments on How to ask for a payday loan refund from people who have used the template letters there to get refunds of interest and charges on payday loans which they have repaid.
People are getting large refunds from all the major lenders including Wonga, Sunny, Payday UK, MyJar, Uncle Buck, Mr Lender, Lending Stream, Wage Day Advance, Peachey, the Money Shop, Safety Net Credit, 247 Moneybox etc.