Wonga gets ready for fresh price cap on payday loans

However, fresh research suggests harsh rules send customers to unregulated lenders

Five:00AM GMT 17 Dec 2014

Wonga has rejigged the fees on its payday loans to serve with an imminent cap on prices, as research suggests that tougher regulation on lenders risks pushing borrowers towards illegal loans.

The online lender said on Tuesday that it had cut the daily cost of its short-term loans from 1pc to 0.8pc per day, in line with the Financial Conduct Authority&x2019;s fresh requirements.

Wonga&x2019;s fines for missed payments have been cut from £20 to £15, while the hard has also abolished its one-off transaction fee of £5.50.

The company has also raised the minimum amount that customers can borrow from £1 to £50. Overall, its equivalent annual percentage rate has fallen from Five,853pc to 1,509pc, tho’ payday loans typically last a matter of days rather than a year.

&x201c;This and all the switches we&x2019;re making at Wonga reflect our commitment to provide short-term lending to the right customers in a responsible and see-through way,&x201d; said Tara Kneafsey, who runs the rock hard&x2019;s UK business.

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The pledge comes as research by Policis suggests that tougher rules on short-term lending simply thrust borrowers into getting into debt with unlicensed and illegal lenders.

A probe by the research company found that six-in-10 online payday transactions made in the US are arranged with unregulated lenders, signifying $9.7bn-worth of debt.

The report, published on Wednesday, claims that 37pc of US payday loans are made in states where such borrowing is already banned or severely restricted.

Policis compiled the figures from 9.4m transactions using credit reference checks, which are used by both licenced and unlicenced lenders.

Forty-five US states have some form of price cap on short-term loans, and some such as Washington have imposed their own tougher rules such as cutting suggest customers after they take eight payday loans in a year.

“The evidence from the US suggests that, as supply shrinks, request does not go away and may well be served by a fresh breed of online illegal lender, possibly operating offshore and beyond the reach of regulators,&x201d; said Anna Ellison, research director at Policis. &x201c;There is a risk that the UK could be sleepwalking into a serious illegal lending problem.&x201d;

About a third of the payday lending market is online in the US &x2013; much lower than in the UK, where internet-based Wonga alone represents about a third of the market.

Wonga, which lent out £1.3bn last year, is among the very first companies to announce fresh rates ahead of the FCA&x2019;s price cap coming into force on January Two.

The rules will require lenders to cap their interest rates ay 0.8pc per day, charge no more than £15 for a default, and never charge a customer more than twice the amount they originally borrowed.

The FCA, which took responsibility for consumer borrowing in April, is also asking all lenders to apply for permission to operate. The watchdog expects all but a handful of the thickest players to drop out of the market under the weight of the fresh regulations.

Wonga&x2019;s chairman, Andy Haste, said when he joined in July that the business would become &x201c;smaller and less profitable&x201d; as the payday lending market shifts.

The company is on the hunt for a fresh chief executive after its interim boss Tim Weller departed after less than six months in the job. In October, the hard said it was writing off £220m-worth of debts that were issued to customers who would not have passed fresh affordability checks.

Wonga gets ready for fresh price cap on payday loans

However, fresh research suggests harsh rules send customers to unregulated lenders

Five:00AM GMT 17 Dec 2014

Wonga has rejigged the fees on its payday loans to conform with an imminent cap on prices, as research suggests that tougher regulation on lenders risks pushing borrowers towards illegal loans.

The online lender said on Tuesday that it had cut the daily cost of its short-term loans from 1pc to 0.8pc per day, in line with the Financial Conduct Authority&x2019;s fresh requirements.

Wonga&x2019;s fines for missed payments have been cut from £20 to £15, while the rigid has also abolished its one-off transaction fee of £5.50.

The company has also raised the minimum amount that customers can borrow from £1 to £50. Overall, its equivalent annual percentage rate has fallen from Five,853pc to 1,509pc, however payday loans typically last a matter of days rather than a year.

&x201c;This and all the switches we&x2019;re making at Wonga reflect our commitment to provide short-term lending to the right customers in a responsible and translucent way,&x201d; said Tara Kneafsey, who runs the stiff&x2019;s UK business.

Related Articles

The pledge comes as research by Policis suggests that tougher rules on short-term lending simply thrust borrowers into getting into debt with unlicensed and illegal lenders.

A investigate by the research company found that six-in-10 online payday transactions made in the US are arranged with unregulated lenders, indicating $9.7bn-worth of debt.

The report, published on Wednesday, claims that 37pc of US payday loans are made in states where such borrowing is already banned or severely restricted.

Policis compiled the figures from 9.4m transactions using credit reference checks, which are used by both licenced and unlicenced lenders.

Forty-five US states have some form of price cap on short-term loans, and some such as Washington have imposed their own tougher rules such as cutting suggest customers after they take eight payday loans in a year.

“The evidence from the US suggests that, as supply shrinks, request does not go away and may well be served by a fresh breed of online illegal lender, possibly operating offshore and beyond the reach of regulators,&x201d; said Anna Ellison, research director at Policis. &x201c;There is a risk that the UK could be sleepwalking into a serious illegal lending problem.&x201d;

About a third of the payday lending market is online in the US &x2013; much lower than in the UK, where internet-based Wonga alone represents about a third of the market.

Wonga, which lent out £1.3bn last year, is among the very first companies to announce fresh rates ahead of the FCA&x2019;s price cap coming into force on January Two.

The rules will require lenders to cap their interest rates ay 0.8pc per day, charge no more than £15 for a default, and never charge a customer more than twice the amount they originally borrowed.

The FCA, which took responsibility for consumer borrowing in April, is also asking all lenders to apply for permission to operate. The watchdog expects all but a handful of the thickest players to drop out of the market under the weight of the fresh regulations.

Wonga&x2019;s chairman, Andy Haste, said when he joined in July that the business would become &x201c;smaller and less profitable&x201d; as the payday lending market shifts.

The company is on the hunt for a fresh chief executive after its interim boss Tim Weller departed after less than six months in the job. In October, the rigid said it was writing off £220m-worth of debts that were issued to customers who would not have passed fresh affordability checks.

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