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Norfolk Business Awards 2018

Wonga: The controversial payday lender which rode crest of an industry wave

PUBLISHED: 18:06 30 August 2018 | UPDATED: 18:06 30 August 2018

Wonga was a controversial player in the payday lending industry. Picture: Yui Mok/PA Wire.

Wonga was a controversial player in the payday lending industry. Picture: Yui Mok/PA Wire.

Wonga rose to become Britain’s biggest payday lender, with more than one million active customers at the height of its success – at a time when the industry was coming under a storm of criticism.

A furore over the tactics of the payday loans industry generally and fears that people were taking on loans they could never afford to pay back led to regulators slashing the amounts such firms are allowed to charge.

Known for its TV adverts featuring friendly grey-haired puppets, Wonga was beset by several scandals, including about 45,000 customers in arrears on loans receiving fake legal letters in order to pressure them into paying up.

In 2014 it emerged that Wonga had previously contacted customers in arrears under the names of firms that did not exist, leading customers to believe that their debt had been passed to lawyers.

Further legal action was threatened if the debt was not repaid. Wonga agreed to pay £2.6m in compensation.

That year also saw Wonga write off a total of £220m-worth of debt belonging to 330,000 customers after carrying out inadequate affordability checks.

The Archbishop of Canterbury, the Most Rev Justin Welby, previously said he had told a Wonga boss about his aspiration to compete payday lenders out of business with the expansion of credit unions.

As part of changes to the company’s culture, Wonga ditched its puppet ads, which were criticised for appealing to children, and launched an advertising campaign featuring “hard-working dinner ladies and mums”.

Later, advertising guidance warned in 2015 that payday lenders should be careful about using catchy or upbeat jingles and animation in their TV ads.

The payday loans industry generally came under intense scrutiny as charities reported receiving many cries for help from people drowning in debt.

Concerns were raised by the Office of Fair Trading (OFT), a predecessor body of the Financial Conduct Authority (FCA), that some payday firms appeared to base their business models around people who could not afford to pay back their loans on time.

This meant the cost of the debt ballooned as they were forced to roll it over and extra fees and charges were piled on.

After coming under the FCA’s supervision, payday lenders were banned from rolling over a loan more than twice.

Since January 2015, payday loan customers across the industry have seen the fees and interest they pay capped, amid moves by regulators to stop such debts spiralling out of control.

For all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.

Wonga started capping the cost of its loans shortly before the rules came into force.

The pricing overhaul meant that the annual percentage rate (APR) which Wonga was obliged to advertise on its website fell in December 2014 from 5,853% to 1,509%.

By that time, Wonga had already tightened up its lending procedures, and said it expected to be smaller and less profitable in the near term.

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