Wonga became the UK’s largest payday lender, with over a million active clients at the peak of its success – at a time when the industry was experiencing a storm of criticism.
The fury over the tactics of the payday loan industry in general and fears that people are taking loans they could never afford to repay have led regulators to cut the amounts these companies are allowed to charge. .
Known for his TV commercials featuring friendly gray-haired puppets, Wonga has been plagued by several scandals, including about 45,000 clients in arrears on loans receiving bogus legal letters in order to force them to pay.
In 2014, it appeared that Wonga previously contacted delinquent clients under names of firms that did not exist, leading clients to believe that their debt had been transferred to lawyers.
Further legal action was threatened if the debt was not repaid. Wonga has agreed to pay £ 2.6million in compensation.
That year, Wonga also wrote off a total of £ 220million in debts belonging to 330,000 customers after performing inadequate affordability checks.
The Archbishop of Canterbury, Bishop Justin Welby, previously said he spoke to a boss in Wonga about his aspiration to compete with payday lenders with the expansion of credit unions.
As part of the changes in company culture, Wonga ditched its puppet ads, which were criticized for being appealing to children, and launched an ad campaign featuring “hard-working ladies and moms. “.
Later, advertising guidelines warned in 2015 that payday lenders should be careful about using eye-catching or upbeat jingles and animations in their TV commercials.
The payday loan industry has generally come under scrutiny as charities have reported receiving numerous calls for help from people drowning in debt.
The Office of Fair Trading (OFT), a predecessor body of the Financial Conduct Authority (FCA), expressed concerns that some payday companies appeared to be basing their business models on people who could not afford to repay their expenses. ready on time.
This meant that the cost of the debt skyrocketed as they were forced to roll it over and additional fees and charges were piled up.
After coming under FCA supervision, payday lenders were prohibited from renewing a loan more than twice.
Since January 2015, payday loan clients across the industry have seen the fees and interest they pay capped, as part of measures regulators are taking to prevent such debts from spiraling out of control.
For all high cost short term loans, interest and charges should not exceed 0.8% per day of the amount borrowed.
Wonga began to cap the cost of its loans shortly before the rules came into effect.
The pricing overhaul means that the annual percentage rate (APR) that Wonga was required to advertise on its website fell in December 2014 from 5,853% to 1,509%.
By then, Wonga had already tightened up its lending procedures and said he expected to be smaller and less profitable in the short term.