Wonga, the UK’s biggest payday lender, plans to write off £220m it is owed by 330,000 indebted customers and eradicate interest charges for 45,000 more in a bold attempt to rehabilitate its reputation with regulators and the British public.
The figure is more than five and a half times the size of its annual pre-tax profits reported earlier this week, dwarfing the £18.8m “remediation costs” the lender paid out last year in the wake of a fake legal letters scandal.
The lender, which revealed this week that its profits had halved, said the change of strategy followed talks with the UK’s Financial Conduct Authority, which has now formally taken over regulation of the payday loans sector.
In a statement on Thursday, Wonga said its “customer forbearance programme” would “address existing customers whose loans would not have been made had they been subject to the new affordability criteria introduced today”.
It will write off all outstanding debt for about 330,000 customers who are in arrears of 30 days or more, and allow a further 45,000 who are in arrears of less than 30 days to repay their debts without interest or charges. These customers will also be given the option of paying off their debt over an extended period of four months.
Andy Haste, Wonga’s group chairman, said it was clear to him that the “need for change at Wonga is real and urgent”.
“When I joined Wonga I was made aware of concerns the FCA had already expressed around affordable lending, concerns which I shared,” he said. “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.”
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.
Wonga said it would now work with a “third party” appointed in conjunction with the FCA to review the implementation of its new “lending decision engine”, which assesses customers’ suitability for loans.