Wonga’s £ 220million Debt Cancellation: Full Backlash | Wonga

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Here is a summary of the instantaneous reaction to Wonga, the controversial payday lender who, in a surprise move, announced it would write off the debts of 330,000 customers.

Labor MPs John Mann and Pat McFadden, members of the Treasury Committee, want Wonga recalled to Parliament to explain what happened.

Andrew Tyrie, Chairman of the Treasury Committee, said:

Many consumers are still treated badly by financial companies – new cases keep coming. We will want to be reassured that these companies have cleaned up their law, and Wonga might just be one of them.

Mann also suggested that action should be taken against Wonga founder and former CEO Errol Damelin.

The Labor Party is pushing for a tax on the breakdown industry to finance credit unions.

Independent City analyst Louise Cooper said:

Today’s announcement may be a sign that the FCA has a few more teeth than the old FSA. He takes to heart his promise to defend the interests of consumers. Although there is nothing about the excessive interest rates charged in the FCA statement. This is left at Wonga’s press release where Andy Haste says the firm addresses the “total cost of credit”.
Andy Haste also makes it clear that under the new lending criteria, many former Wonga clients will no longer be able to borrow from them. The hope is that these people will learn to live within their means. But the fear is that they turn to loan sharks and other unregulated lenders where the terms can be much more damaging. By driving out regulated players, the FCA can make way for much worse.

Cooper added:

Shouldn’t we be educating the British, especially young people in school, to understand the basics of finance. Everyone complained about the moral hazard in the bank bailout. There is clearly a moral hazard in telling people who have borrowed too much that they don’t worry that all of their debts will go away.
And what about other Wonga clients who meet the new, stricter lending criteria. They still have to repay the principal and interest in full. So if you use some common sense, cut your spending, and only borrow a little, then you have to pay it all back. But if you’ve gone mad and took all the money Wonga offered and spent it all, don’t worry, someone else will pay the cost.

Consumer organizations welcomed Wonga’s decision, but were cautious in their response. Which? executive director Richard Lloyd mentionned:

Wonga’s announcement is better late than never for struggling borrowers, but it’s clearly the result of the regulator taking a tougher approach. The FCA must keep payday lenders on a leash.

We have long called for more responsible affordability controls and better advice. The next step must be a crackdown on excessive fees and charges at all levels to show lenders that the FCA will continue to clean up the credit market.

Joanna Elson OBE, Managing Director of Money Advice Trust, the charity that runs National Debtline, said:

These steps are a welcome step in the right direction. Nonetheless, we know that there will remain a large number of borrowers with payday loans who are struggling to cope with their debts, and it is essential that these clients be directed to free debt advice.

Consumer organization uSwitch said Wonga’s new accessibility guidelines are “a big win for consumers.” But David Mann, Money Manager at uSwitch.com, added that they do not address the broader issue of why clients were placed in this vulnerable position in the first place.

“Wonga’s new accessibility criteria answer these questions to some extent, as payday lenders must put in place the same controls as banks and building societies before issuing loans.

“Today’s news does not solve the growing need for short-term loans. Those who need the money the most, often with poor credit scores, have been denied the banks and feel they have no other choice. There is a bigger question that needs to be asked around the growing need for short-term credit. “

And payday loan expert Carl Packman, who has written a book on the industry, noted that Wonga’s much-vaunted algorithms have failed to prevent bad loans.

Wonga has always been able to hide behind the excuse that this is an innovative tech company before being a payday lender, but today they admit that their “algorithm” did not stop the company to lend to people who can least afford it. high cost credit.

The problem with payday lenders is that for so long they’ve been motivated to lend money without doing affordability assessments because that’s what makes a profit. Not doing credit checks saves businesses money, and if borrowers are struggling to repay their loans, lenders can take advantage of rollover options.

I am happy that FCA is working with Wonga to improve their affordability ratings. We must now work to improve ethical alternatives such as credit unions and community banks that will eclipse the payday lending industry.

Professor André Spicer of Cass Business School says Wonga’s decision may “appear to be business madness, but there is a method in corporate madness.”

Following waves of negative publicity and unwanted attention from the regulator, the company decided to rethink its business model. It is becoming clear that payday loans based on usurious interest rates are no longer legitimate or particularly profitable. Instead of being a thug, the company wants to be responsible. Debt forgiveness is a drastic way to mark this break. Not only will the move generate positive publicity, much of the debt has likely been costly to collect. It was reportedly sold to debt collection companies at a great price. This means that Wonga may not be missing much.

Wonga’s movement today is akin to the Debt Jubilees in ancient civilizations where, on a particular day, rulers freed subjects from their debts. This had the effect of attracting favor but also stimulating economic activity.

What remains to be seen is how much Wonga will actually change in the future. For example, what information will be provided to customers, will their knowledge be verified and what interest rates will be paid. What if new customers don’t pay their debts within 30 days? Will debt cancellation promote moral hazard on the part of borrowers? Many of these issues are uncertain. But ethical payday lending can remain an oxymoron.

Nicolas parsons‘Jean Diamond said the BBC’s Just a Minute host and the former Sale of the Century host had nothing to say about Wonga. Parsons, who did voiceovers for Wonga’s commercials, had no regrets, she said.

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