British short-term lender Wonga is writing off the outstanding debt for around 330,000 customers at a cost of about £220 million (HK$2.76 billion), after being forced to overhaul its lending practices by Britain's financial regulator. The Financial Conduct Authority said yesterday Wonga had entered into a so-called voluntary requirement agreement to make the changes, which ensures immediate redress for consumers while allowing the regulator to continue investigations and possible enforcement action. It is the starkest intervention to date by the regulator as it clamps down on practices by companies who charge high interest rates for short periods, often dubbed "payday" lenders. Privately owned Wonga is the biggest such lender in Britain. The bill for compensating customers would come to about £220 million, a source said. That works out at an average of £666 for affected customers. The company had "significant" provisions to cover the cost of the write-off, the source said. However, the latest in a series of blows to the company will raise questions about its future. Its profits more than halved last year to £39.7 million after it had to set aside £18.8 million to cover legal fees and fines from regulators arising from a scandal in which it sent fake legal letters to some customers. Wonga launched in 2007 and grew rapidly, saying it filled a gap left by traditional lenders by providing flexible financing for thousands of people. It has one million customers in Britain, and another three million in eight other countries. It is backed by technology investors including Accel Partners, Balderton Capital and Greylock Partners, according to its website. But Wonga and other short-term lenders have been lambasted by politicians and even the Church of England for charging high interest rates - which at Wonga can equate to 5,853 per cent a year - that cause hardship for many customers. Wonga said it was making significant changes to its lending criteria that will mean it accepts "significantly fewer" loan applications and will mean some existing customers would no longer be able to borrow from it. It will write off all the debt of customers who are in arrears for 30 days or more. A further 45,000 customers who are in arrears of up to 29 days will not be charged interest and will be given longer to pay back their debt. "It's clear to me that the need for change at Wonga is real and urgent," said Andy Haste, the lender's new chairman. "We want to ensure we only lend to those who can reasonably afford the loan in question."
