Headaches for Wonga's new Chairman and lingering questions for its founder
I've just finished speaking to Wonga's new Chairman, Andy Haste.
This morning the company he heads admitted that it has lent money to 375,000 people who it is now clear are not in a position to repay it.
The company is writing off £220 million of money it is owed in a move that will cost the company £35 million. The difference between these two figures gives you a sense of the sort of interest Wonga has been charging its customers to borrow money.
The scale of this is breath-taking. Andy Haste has reviewed its customer base and, in effect, decided that one fifth of all the loans it has made since Wonga.com went live in 2007 should never have been made.
Andy Haste says he knew Wonga had issues with its lending practices when he took the job as Chairman in July. "A consumer credit company that's growing as fast as a weed should get the antenna up," he told me. "This business had been too focused on growth and cared more about the loan outcome than the customer outcome."
Haste is promising "real and urgent" change. He's a respected City veteran, there's no reason to doubt his sincerity but my goodness he has a challenge on his hands.
In the past Wonga always became indignant when its lending practices were challenged. It would point to its state-of -the-art website with its top secret algorithms that were capable, we were told, of rigorously vetting loan applications in seconds. The default rate - low even by mainstream lending standards - was held up as proof of its integrity.
But Wonga's business model wasn't to pursue unpaid debt to the point of default, instead loans got rolled.
Andy Haste told me that Wonga's internet engine was "not sufficient, not sophisticated enough to process a high volume of loan applications in a properly regulated environment". He won't spell out all the changes that have been made but lending criteria has been tightened and he promises that customers "can now borrow with confidence" although he also says there will be “a material drop in the number of loans to new and existing customers”.
A new internet engine is being designed, it will launch by February next year at the latest.
Wonga's new Chairman is leading the business in a new direction but the regulator's fingerprints are all over this. The Financial Conduction Authority took over regulation of the payday lenders abck in April, Wonga acknowledges the FCA raised concerns about lending practices.
Headaches for Wonga's new Chairman and lingering questions for its founder.
Wonga, under Errol Damelin, was lending irresponsibly on an almighty scale, 375,000 people is larger than the population of Cardiff.
Errol Damelin left Wonga in June but retains a stake, I'm told of "less than 10%." That sounds significant but Andy Haste told me he has no input at all into the way the company is now run.