Payday lenders should wipe out loans in wake of Wonga ruling experts say
Thousands of people who have taken out payday loans from firms other than Wonga should also have their interest and charges wiped out, say consumer and legal experts.
This follows the announcement on Thursday that the payday lender was forced by the Financial Conduct Authority, the new City regulator to write off £220m of loans to 375,000 borrowers after the firm admitted those people should never have been given loans.
The company, which charges annualised interest rates of up to 5,853% a year and has been accused by MPs of “legal loan sharking”, said it would entirely wipe out loans to 330,000 people, and scrap interest and charges owed by a further 45,000 customers.
Wonga is the biggest online lender in the payday loan sector with about a 30-40% market share, but there are around 90 other lenders including Dollar Financial UK (the parent company of brands that include The Money Shop, Payday Express and Payday UK), CashEuroNet, QuickQuid, Peachy and Sunny. In 2012 the volume of loans lent between them was £10.2m, according to the CMA.
Wonga was required to write off the debts because the FCA found that it had granted the loans without checking people could afford the repayments. But a number of experts who deal with complaints about the payday loan sector have told the Guardian that the affordability tests carried out by many of these other lenders are as bad or worse than Wonga’s. This could potentially open the floodgates to thousands of payouts to other borrowers.
“If this redress package is required of Wonga then what of the other payday lenders in the country?” said Mike Dailly, consumer rights campaigner and principal solicitor at the Govan Law Centre in Glasgow. He also sits on the FCA consumer panel. “From my experience as a lawyer helping consumers there is no doubt in my mind that other payday lenders have failed to comply with the affordability criteria laid out in the Consumer Credit Act in the way that Wonga did.”
He added: “It is likely now that other lenders in the sector who want a future will have to come clean or face action from the FCA.”
Dollar Financial said: “Our UK companies have been working closely with various stakeholders including our regulators to ensure that we offer compliant and responsible products to all of our customers.”
Although the FCA has stopped short of saying that it is proactively investigating other firms, Clive Adamson, director of the supervision at the watchdog said that the action it had taken against Wonga should “put the rest of the industry on notice” and that “some firms still have a way to go to meet our expectations.”
“We have long called for more responsible affordability checks and better advice,” said Which? executive director Richard Lloyd. “The next step must be a clamp down on excessive fees and charges across the board to show lenders that the FCA will continue to clean up the credit market.”
People who have already paid off loans, including those from Wonga, may also be in line for redress if it can be shown that they should never have been lent to in the first place, say experts.
A number of these people were only able to repay the loan with help from friends or family or by borrowing elsewhere, while others are still paying off the loans through repayment plans set up by debt charities and organisations like Citizen’s Advice.
Wonga said that it would be contacting all those affected by 10 October and that this included those whose debt had been sold to a third party or had been entered into an individual voluntary arrangement or a debt management scheme. However, it would not be drawn as to whether former customers would be contacted.
“We’ll work with the FCA to identify if any further remedial action is required and will communicate details, if appropriate, in due course,” it said in a statement.
There are fears that claims management companies, best known for handling PPI claims, will try to entice payday loan borrowers to make a claim using their services. Borrowers who go down this route will typically be asked to pay an upfront fee to the claims management company.
“If people are contacted by claims management companies or solicitors offering to recoup their money for free, we would say hold fire as discussions are still gong between Wonga and the FCA,” the Financial Ombudsman Service said.
It urged anybody who has a payday loan and thought they might be affected not to stop making repayments until the situation became clearer.
- The Guardian,