Wonga has been forced to write off £220 million worth of debts under new guidelines concerning affordability that have been applied with the help of regulators.
The firm will cancel the debts of 330,000 customers that would not have been approved for loans under the new checks and another 45,000 customers that are in arrears won’t have to pay interest on loans.
“We have been working closely with the Financial Conduct Authority [FCA] to agree additional requirements to our lending criteria, which have been implemented as of the 2 October 2014 across our UK consumer loans service. We have also today committed to a major customer forbearance programme for many existing customers whose loans would not have been made had they been subject to the new affordability criteria introduced today,” read a statement on the firm’s website.
Wonga will inform the customers affected by 10 October and the FCA added that, although the agreement is a “voluntary” one, the controversial payday loans industry is now on a short leash.
"This should put the rest of the industry on notice," Clive Adamson, director of supervision at the FCA, told the BBC. "They need to lend affordably and responsibly."
The firm will also have to appoint a “skilled person” to report back to the FCA with regular monitoring reports on the company’s lending decisions with the person being appointed by both parties.
Earlier this year Wonga, which provides payday loans to around one million customers a year, was forced to pay £2.6 million in compensation after sending out fake letters from law firms demanding payment from customers in arrears.
It estimates that its business will be “smaller and less profitable” in the future following the new FCA controls that came after a price cap on payday loans this summer that could see the industry lose a total of £420 million as a result.
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