Wonga to make major changes to affordability criteria following discussions with the FCA

Published: 02/10/2014     Last Modified: 02/10/2014
Wonga has entered into an agreement, known as a voluntary requirement (VREQ), with the Financial Conduct Authority (FCA) that requires it to make significant changes to its business immediately.

When it took over regulation of consumer credit in April of this year, the FCA requested information about the volume of Wonga’s relending rates. The information received suggested that Wonga was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.

The FCA has agreed an approach with Wonga for remedial redress for those customers who were affected by inadequate affordability assessments:

  • Approximately 330,000 customers who are currently in excess of 30 days in arrears, will have the balance of their loan written off and will owe Wonga nothing.
  • Approximately 45,000 customers who are between 0 and 29 days in arrears will be asked to repay their debt without interest and charges and will be given an option of paying off their debt over an extended period of four months.

Wonga will be contacting all customers by 10 October to notify them if they will be included in the redress programme. Customers should now continue to make payments unless they are told to stop by the firm. Borrowers who are experiencing financial difficulty, should contact Wonga to discuss their options.

The FCA will continue to work with Wonga to identify whether there is any other remedial action required. If necessary, further details will be communicated by the firm in due course.

Clive Adamson, director of supervision, said:

“We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations. This should put the rest of the industry on notice – they need to lend affordably and responsibly.

“It is absolutely right that Wonga’s new management team has acted quickly to put things right for their customers after these issues were raised by the FCA.

Effective today, Wonga has introduced new interim lending criteria that should improve customer outcomes. It is also working to put in place a new permanent lending decision platform as soon as possible. The FCA has also required Wonga to appoint a Skilled Person to monitor the new lending decision platform to ensure it has the desired effect; the Skilled Person will report to the FCA and give an independent view of the firm's activities.

Notes for editors

1. The agreement with the FCA says:

    • Wonga has agreed a forbearance programme with the FCA in relation to the following customers who have been adversely affected by breaches of any affordability related regulatory requirements and standards applicable at the relevant time by:
      • remediating those customers who are currently in excess of 30 days in arrears by way of write-off; and
      • suspending and refunding interest and charges for those customers who are between 0 to 29 days in arrears and extending the repayment period to four months.
    • Wonga will implement measures to improve its affordability assessments to ensure customers are treated fairly and lent to in a sustainable manner in accordance with applicable regulatory requirements and guidance.
    • The FCA will consider the interim measures put in place to assess whether they are delivering appropriate outcomes for consumers.
    • A Skilled Person will be appointed under section 166 of the Financial Services and Markets Act and will review the new lending decision platform and test outcomes and make recommendations for any further improvements, as required.

2. Requirement notice

3. The Money Advice Service provides free and impartial advice to people in financial difficulty, for further information www.moneyadviceservice.org.uk

4. On 25 June 2014, the FCA announced that Wonga would pay redress for unfair debt collection practices http://www.fca.org.uk/news/wonga-redress-unfair-debt-collection-practices

5. On 15 July 2014, the FCA announced its proposals for a price cap on payday lending http://www.fca.org.uk/news/fca-proposes-price-cap-for-payday-lenders

6. On 12 March 2014, the FCA announced a thematic review into the way payday lenders and other high cost short term lenders collect debts and manage borrowers in arrears and forbearance.

7. On 1 April 2014, the FCA took over responsibility for consumer credit and the regulation of 50,000 consumer credit firms, including logbook lenders, payday lenders and debt management firms.

8. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).

9. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.

10. Find out more information about the FCA.

 

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