Labour MPs call for Wonga to be hauled before parliament for questioningHere is a round-up of instant reaction to Wonga, the controversial payday lender which in a surprise move announced that it would write off the debts of 330,000 customers.Labour MPs John Mann and Pat McFadden, members of the Treasury Committee, want Wonga to be recalled to parliament to explain what happened.The new affordability criteria put in place by Wonga goes some way to address these questions as payday lenders need to have the same controls in place as banks and building societies before issuing credit.Todays news doesnt solve the escalating need for short term loans. Those most in need of money, often with poor credit ratings, have been turned away from the banks and left to feel they have no other option. There is a bigger question that needs to be asked around the growing need for short term credit.Wonga has always been able to hide behind the excuse that it is an innovative tech company before its a payday lender, but they are admitting today that their algorithm hasnt stopped the company from lending to those people who are least able to afford high cost credit.The problem with payday lenders is that for so long they have been motivated to lend money without carrying out affordability assessments because this is what draws a profit. Not carrying out credit checks saves the firms money and if borrowers are struggling to pay off their loans then lenders can cash in on rollover options. Following waves of negative publicity and unwanted attention from the regulator the firm has decided to rethink its business model. It is becoming clear payday lending premised on usurious interest rates is no longer either legitimate or particularly profitable. Instead of being a rogue, the firm wants to become responsible. Forgiving debts is one drastic way it can mark out this break. The move will not just generate positive publicity, but much of the debt was probably costly to recover. It would have been sold on to debt recovery companies at a huge discount. This means Wonga may not be missing out on much.Wongas move today is akin to debt jubilees in ancient civilizations where on a particular day, rulers would free subjects of their debts. This had the effect of currying favour but also spurring economic activity. Wonga's move on writing off debts came after the FCA demanded change via a Voluntary Requirement which wasn't very, erm, voluntaryJohn Mann: Wonga have used "underhand tactics" to "target vulnerable people" and said action should be taken against ex-CEO Errol DamelinA £150 Wonga loan for 18 days, including fee and interest gives total repay of £183.49, equal to APR of 5,853%: http://t.co/aGkX22NBU9Wonga are apparently writing off £220m of customers debts. Thank Christ for that, one only borrowed £100 to buy Greece. Continue reading...
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