In an apparent act of contrition, Wonga has announced it will write off the debts of 330,000 customers who’ve been in arrears for thirty days or more, at the cost of a cool £220m. It will also allow interest free repayment for 45,000 customers whose debts are up to 29 days overdue, at an undisclosed cost.
This announcement comes only days after the payday lender revealed its profits had fallen 53% from £84.5m in 2012 to £39.7m in 2013. The reduction was driven by ‘remediation costs’ for Wonga’s dodgy debt collection tactics in the past, notably its use of fake legal letters sent to customers to ‘persuade’ them to cough up the dough.
The firm agreed with the Financial Conduct Authority to pay at least £2.6m to affected customers, but has set aside £18.8m to handle the problem. Clearly, the £220m being written off now will have an even more dramatic impact on its books come December 31st, when its annual results come out.
Wonga’s decision to forgive the debts is part of an effort by new chairman Andy Haste to reform the business by implementing more stringent lending criteria. The debts being written off are the ones by customers who would not satisfy those criteria if they were applying for Wonga loans today.
While it might seem strange for any company to voluntarily write off debts worth over five times its annual profits, Haste’s eyes are on Wonga’s long term survival and reputation. The move was negotiated with the FCA, which regulates the industry, and clearly seems designed to get on its good side.
‘Our regulator is determined to improve standards in consumer credit and I share that determination,’ Haste said. ‘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.’
The FCA seems to be very pleased with its new teacher's pet, saying Wonga was ‘absolutely right’ to take the step, which it said should ‘put the rest of the industry on notice’.
While there may be a whole lot of rejoicing in heaven (and at the FCA) over a sinner that repents, it remains to be seen how Wonga’s move will be received by the Church of England. The Church has a history of both criticising the company for its sins and investing its pension fund in it, though it recently sold off all its shares. Now that Wonga has done a prodigal son, will Archbishop Justin Welby forgive it and buy back the Church's stake?