The UK financial regulator has sent a warning to payday lenders after rising complaints over the Wonga collapse.
According to Reuters, the Financial Conduct Authority (FCA) sent a “Dear CEO” letter to payday loan providers, asking them to take a closer look to determine whether their credit ratings are compliant and whether borrowers need to be repaid.
In addition, the FCA ordered lenders to notify it immediately if clearing customers with grievances would prevent companies from meeting their financial obligations.
The move comes after Wonga, the UK’s largest payday lender, shut down in August after an increase in complaints from former clients.
Wonga – launched in the aftermath of the 2008 financial crisis – has had its own series of run-ins with the FCA. Backed by big names in investing like Accel and Balderton Capital, Wonga specialized in offering short-term loans that were advertised as nicer, friendlier, and more honest than the typical payday loan. Critics complained that the reality didn’t match the marketing and cited evidence that the Wonga loans – and the 5,800% interest rates that came with them – might not be so gracious or friendly.
After admitting that its algorithmic technology loaned money to people who couldn’t repay it, Wonga agreed to cancel loans for 330,000 clients, as well as waive interest and fees for an additional 45,000. The company was also censored by the FCA for sending bogus letters from lawyers to late-paying clients, forcing it to pay an additional £ 2.6million in compensation.
And there was more bad news when the company was also hit by a data breach in 2017 that affected around 270,000 of its customers – over 240,000 in the UK and another 25,000 in Poland. The breach, according to reports, was not discovered for several days before the company realized that customer information had been exposed.