Britain’s biggest payday lender, Wonga, has had a disastrous week. First it announced a catastrophic 53 per cent fall in profits, mainly due to the costs involved in the the fake legal letters scandal which blew up this summer.
Then, on Thursday, it was forced to write off an estimated £220m of debt after the City Watchdog accused it of irresponsibly lending to some 375,000 borrowers. The company has agreed to change its lending practices and the Financial Conduct Authority has forced it to parachute in an independent expert who will report back to the watchdog on how the new affordability standards are performing.
Wonga has been forced to concede that it will be able to offer loans to far fewer people in future. This is great news, but it’s not yet a time for celebration. Why? There are two main reasons. First is the fact that, despite its dodgy dealings, Wonga is far from being the worst of the high-cost credit companies.
Second is the fact that those who are now turned down by Wonga because of affordability issues are likely to be the most hard-up folk. If they’re desperate for cash where will they turn to next? The fear is that they will be forced into the arms of even more unscrupulous online firms or even unregulated lenders.
The latter are the scariest of the lot as they have no rules to flout and simply charge what they want – and can resort to violence to get their money back.
So while, yes, I’m very pleased that the excesses of payday lenders are being curbed, I know that more must be done to help the vulnerable people who are desperate for short-term cash. That means giving more support to local credit unions and debt charities that can help people through a difficult patch.Reuse content