Wonga is to write off the debts of 330,000 customers after it admitted it has made loans to people who could not afford to pay them back.
The move by the pay-day lender comes after an agreement with the Financial Conduct Authority (FCA) that requires it to make significant changes to its business immediately.
The review means that about 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 up to 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’s new chairman Andy Haste said: “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.”
Wonga will be contacting all customers by October 10 to notify them if they will be included in the redress programme. Customers should continue to make payments unless they are told to stop by the firm. The company has introduced new interim lending criteria and is working to put in place a new permanent platform as soon as possible.
Wonga said it would be accepting significantly fewer loan applications and that some existing customers would no longer be able to use the service.
Mr Haste said: “It’s clear to me that the need for change at Wonga is real and urgent. Our regulator is determined to improve standards in consumer credit and I share that determination. There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.”
When it took over regulation of consumer credit in April, the FCA requested information from Wonga which subsequently suggested it was not taking adequate steps to assess customers’ ability to meet repayments. The announcement was welcomed by the Archbishop of Canterbury Justin Welby, who has said the lending and savings industry should be a good servant not a bad master.