Wonga to write off the debts of 330,000 customers

Wonga's admission that it lent to people who could not afford repayments is a "symptom of a wider problem" in the payday loans industry, the Citizens Advice Bureau has said.

Rachael Badger told ITV News said the CAB had been hearing that many companies were not properly checking whether customers could afford repayments.

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The number of people "rolling over" their payday loans into a second month or more has reduced by three-quarters since tighter of the industry came into effect, an association representing the industry has said.

Many lenders allow customers to renew their borrowing month-on-month if they are unable to afford repayments - usually incurring extra costs.

Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association, said Wonga's announcement of redress for thousands of customers who had fallen into arrears was representative of "the new lending landscape".

Tighter affordability checks from the Financial Conduct Authority had also meant a dramatic fall in the number of payday loans had been granted, he added.

Hamblin-Boone pointed out that a new "cost of credit cap" on the industry would control the prices of the loans, while further measures restricting the industry are due to be announced before the end of the year.

Archbishop of Canterbury Justin Welby has welcomed Wonga's decision to write off the debts of 330,000 customers whose loans would not have been made under new affordability criteria.

He said the move was an effort to put right some of the things that have gone wrong in the past and the finance industry should be "a good servant not a bad master". But the head of the Anglican Church said the major issue was to create a reformed financial system.

• Read: Three questions Wonga now needs to answer

By Chris Choi: Consumer Editor

If Wonga had found breaches in its lending process and taken the initiative in putting things right, they would deserve praise.

The truth seems to be different - behind the great "payday payback" is the Financial Conduct Authority, a powerful watchdog.

The FCA has new powers to regulate the payday sector and what we are seeing today is just the start.

Insiders at the Authority tell me - and I think they are correct - that many lenders are likely to simply leave the market between now and January - either because they cannot or will not apply new rules on checking customers ability to repay.

Wonga will contact all its customers by the end of next week to inform them if they will be among the 375,000 to be included in the redress programme announced today.

ITV News Consumer Editor Chris Choi reports:

Pay-day lender Wonga will write off £220 million owed to it, but the company will only feel the loss of £35 million as the rest is interest on the debts of the 330,000 customers.

Wonga's new chairman has admitted the company made loans to people who could not afford to repay.

The statement comes after the payday lender's agreed with the financial watchdog to make significant and immediate changes to its business.

Debts for 330,000 customers currently in arrears of more than 30 days will have their loans written off, while 45,000 who are up to 29 days in arrears will be asked to repay without interest and charges over an extended period of four months.

Chairman Andy Haste said: "We want to ensure we only lend to those who can reasonably afford the loan in question and during my review, it became clear to me that this has unfortunately not always been the case.

"I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions."