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

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

Butterworths Financial Regulation Service is written by a team of experienced and well known authors comprising practising lawyers, regulators and academics, and provides detailed, authoritative analysis and clear, practical guidance on the UK financial regulatory system.  covering the general principles and rules of financial regulation, as well as an indepth look at specific types of regulated business.

In this excerpt from the December bulletin of the Butterworths Financial Regulation Service (FinReg Bulletin No. 142 December 2014) Clive Adamson, Director of Supervision at the FCA, gives his response to Wonga's voluntary requirement:

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

Wonga has entered into an agreement, known as a voluntary requirement (‘VREQ’), with the 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 committed to contact 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 for the FCA, 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.’

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.

Bulletin editor

Abdul Karim Aldohni LLB, LLM, PhD

Lecturer in Law, Newcastle Law School

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