The nasty and unethical excesses of the UK payday lending party are crumbling as the new regulator, the Financial Conduct Authority (FCA), attacks the industry.
The latest to be forced to right the wrongs done to aggrieved clients is Wonga (not for the first time this year either) – a lender who has positioned itself as a tech startup with “fancy accessibility algorithms” to it. apparently made it possible to make decisions about who he could and couldn’t lend in a matter of minutes.
Well, it turns out that those algorithms weren’t that sophisticated after all – given that today the company agreed to write off the debts of 330,000 customers over 30 days overdue in full and waive interest rates and fees of another 45,000. between 0 and 29 days late.
According to the BBC, the 330,000 canceled debts totaled £ 220 million.
Wonga is writing off those debts because she admits her own affordability controls were insufficient. So much for its sophisticated technology.
In a statement released today on its website, Wonga notes:
We have worked closely with the FCA to agree additional requirements to our lending criteria, which have been implemented since October 2, 2014 across our UK consumer lending department.
We also embarked on a significant client forbearance program today for many existing clients whose loans would not have been granted had they been subject to the new affordability criteria introduced today.
In another section on the new affordable loan criteria, the company warns customers that they could now be refused a loan, even if it has lent them money in the past:
We just want to offer you a loan that we think you can afford. So even if you have been a customer before and have a good repayment history, you can only be accepted for a lower loan than you have borrowed in the past. In some circumstances, we may not be able to offer a loan at all.
So at the end of the day Wonga’s business goes down because they previously lent to people they should never have lent to in the first place – people who had a hell of a chance they could pay off a snowflake – then dined at the exorbitant restaurant. interest rate.
No, this is not disruptive business behavior. It’s old usurious loan.
While Wonga’s agreement with the FCA is technically voluntary today, the regulator has the power to impose demands on it.
FCA said Wonga put in place interim measures to test affordability, before rolling out a new permanent loan decision platform that reflects the new, more stringent accessibility criteria. There is no ETA yet on when this will land.
Commenting on the specific changes to affordability controls, a spokesperson for Wonga told TechCrunch: “There is a series of major changes – at the heart of it is a much more in-depth look at loan-to-income ratios. . We have also implemented new credit policy rules that did not exist before. For example, previously people who made late payments could immediately reapply – now they will face an automatic block for 30 days. Additionally, people we turn down for credit reasons will no longer be able to reapply immediately – they too will face an automatic block for 30 days. The combination of these changes means that there will be a significant drop in the number of loans we make. “
As part of the remedy, Wonga also agreed to appoint a qualified person to oversee its new loan decision platform and report to the FCA to provide an independent view of its business. The rental will be jointly agreed between Wonga and the regulator, according to an FCA spokeswoman.
The FCA has been actively regulating the UK payday lending industry since early April this year, succeeding the Office of Fair Trading. In July, another payday loan company, Dollar, agreed to tighten its FCA-requested lending criteria and pay back more than £ 700,000 in interest and fees to customers.
In June, Wonga was also forced to pay more than £ 2.6million in compensation to around 45,000 customers after the FCA found him guilty of deceptive and unfair debt collection practices. The company was found to have sent debt collection letters to clients of non-existent law firms.
This summer, the FCA also proposed a price cap on payday loans, estimating that payday lenders will lose £ 420million a year due to the proposed changes.
The regulator is currently consulting on the proposals, but it seems certain that a long overdue cleanup is underway for a very dirty sector. And that can’t come soon enough.