Member Article

Wonga backs regulatory changes for short-term loans companies

Pay day lender Wonga defended its practices on Wednesday, and put its support behind regulatory changes in the short term loans sector.

Under a grilling from the public accounts committee in the House of Commons, Henry Raine, head of regulatory and public affairs for Wonga said the company is all for transparency within its practices.

Mr Raine said he would not speak for other short term loans companies, but that Wonga would react positively to regulatory changes across the board.

Wonga has come up against much negative media coverage in the past year, especially after issues with identity fraud, which resulted in payments being taken out of bank accounts of people who had never signed up to receive a loan.

Pressure has also been put on the firm to answer to its astronomically high APR rate, and whether the company behaves in an ethical manner, given that many of its customers could be in financial difficulties.

When asked by the committee chair, Margaret Hodge, MP, whether Wonga customers were aware of the company’s 4214% APR rate, Mr Raine responded: “Yes it’s on the website!

“Certainly, upfront, prominently on the website on the homepage are two things, one is how much it’s going to cost you in pounds and pence, […]and the other thing is, as is required by law, a totally relevant APR figure.”

He went on to argue that APR is the wrong measure for a short term loans firm to demonstrate how much customers will have to pay back, because it works on an annual basis.

“It assumes you’re borrowing for a year. So the shorter the amount you show, 16 days is our representative example, the more the APR looks. So it’s the wrong measure, and I think everyone agrees with that.”

Wonga was also questioned on how it deals with bad debts that it doesn’t expect to recover from customers who have postponed payment.

Conservative MP, Justin Tomlinson, raised the issue of loans companies selling debt to unscrupulous firms, and asked if Wonga was looking into selling bad debts on.

In answer, Mr Raine said: “We haven’t traditionally done that, but we are now looking at doing that.

“The only people we’ll sell to are the people who collect debts in the regulatory sector. We have been negotiating with a company that regulates itself.”

He added that any firm to take on bad debts would still be answerable to Wonga: “Those are still our customers and any action they take has to come through us for the simple reason that if they mistreat our customers, it will soon become apparent.”

Mr Raine’s advice for regulation changes within the short term loans sector included enforced proper affordability and credit checking, and ensuring that loan extensions are limited and not encouraged.

He also promoted a potential ruling to share information across credit agencies on data, and to clearly explain penalty charges to customers.

He added: “We are far from perfect, but unfortunately we get […] tarred with things we don’t do. And I think that regulation in that sense is a very positive thing.”

This was posted in Bdaily's Members' News section by Miranda Dobson .