Charities, consumer groups and MPs say other ‘legal loan sharks’ who distributed checks without performing proper credit checks could be forced to take similar action
Up to a million payday loan customers could have their debts and late fees waived after Wonga admitted mis-sold loans worth £ 220million.
Debt charities, consumer groups and MPs say other “legal loan sharks” who handed out checks without performing proper credit checks could be forced to take similar action.
Wonga, Britain’s largest payday lender, has written off the debts of 375,000 borrowers – about one in five – after admitting he hadn’t checked to see if they could afford the refunds.
Campaigners believe that a fifth of the five million people who take out payday loans could make similar claims.
They say it could force many of the UK’s 400 companies out of business – legal loan sharks preying on the poor.
Wonga, which charges interest rates of up to 5,853% per annum, was forced by the city’s watchdog, the Financial Conduct Authority, to write off loans to 330,000 people with more than 30 days in arrears.
Another 45,000 who are up to 29 days late on payments will have their penalties and interest waived.
Labor MP Stella Creasy, spokesperson for the consumer party, has led a long campaign against high cost loans.
She said: “I would be stunned if the FCA didn’t look at other payday lenders because this type of behavior is prevalent in the industry.”
Citizens Advice chief Gillian Guy said: “Half of the people who shared their experiences with us said they were not asked about their finances before receiving a loan.
“Any business based on the exploitation of people should not survive. “
Around 1.6 million people took out a total of £ 2.5 billion in payday loans last year, borrowing an average of £ 260 over 30 days.
But new rules can lead many lenders to bankruptcy because the loans will no longer be viable.
The FCA plans to limit interest and fees to 0.8% per day from January and ensure that no one pays more than double the amount borrowed.
An FCA spokeswoman said: “We are actively regulating the sector and would certainly be concerned about any business that does not follow our rules.
Wonga boss Andy Haste apologized last week for the company’s failings.
He said: “There is a real and urgent need for change in this business. “