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Wonga Woes Have Lenders On Notice
It has been a rough few months for Wonga, the payday lending giant based in the UK. In the last five months, Wonga was ordered to write off £220,000,000 in loans ($341,550,000 USD), compensate 45,000 customers, lost two CEOs in 11 months and most recently, laid off one-third of its workforce. And the football team which it sponsors, Newcastle United, has just one win in its last six matches. To boot, Wonga’s logo will be removed from Newcastle youth jerseys beginning with the 2016-17 season.
The Questionable Practices of Wonga – and the PenaltyWonga was found guilty of sending artificial legal notices to 45,000 customers, threatening them to make good on outstanding debts. The Financial Conduct Authority, which oversees the lending industry in the UK, ordered Wonga to pay £2.6 million in restitution ($4,037,200 USD). In October, Wonga cancelled the debts of 330,000 customers after an inquiry revealed it had ignored proper affordability checks. Additionally, Wonga and all lenders in the UK are under new regulations which include rolling a loan over no more than twice; and attempting to reclaim a debt from a customer’s account no more than twice. Despite signing on an estimated 1 million customers with loans each year, Wonga announced this week it is closing the doors of its offices in Dublin and Tel Aviv.
What is Troubling the Lending Industry?It’s not just in the UK where the lending industry is has come under scrutiny. US lenders are dealing with operation choke point, the Consumer Finance Protection Bureau’s effort to “choke off” access to credit card processing for which it deems as unsavory industries.
What is Wonga’s Next Move?Wonga needs to regain the level of public trust it once had. It is a monumental task that will take years, but it has taken an important step in implementing new affordability guidelines, which it must adhere to closely at the very least.
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