Britain’s financial regulator has sent a warning to payday lenders after rising complaints following the collapse of Wonga.
According to Reuters, the Financial Conduct Authority (FCA) sent a “Dear CEO” letter to providers of payday loans, requesting that they take a closer look to determine whether their creditworthiness assessments are compliant and whether borrowers need to be reimbursed.
In addition, the FCA ordered lenders to inform it immediately if compensating customers with grievances will leave firms unable to meet their financial obligations.
The move comes after Wonga, U.K.’s largest payday lender, shut down in August after a surge in complaints from former customers.
Wonga — launched in the wake of the 2008 financial crisis — 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 kinder, friendlier and more honest than the typical payday loan. Critics complained that the reality didn’t match the marketing and cited evidence that Wonga loans — and the 5,800 percent interest rates that came with them — may not have been all that kind or friendly.
After admitting its algorithmic technology had been lending money to people who couldn’t pay it back, Wonga agreed to write off the loans of 330,000 customers, as well as waive the interest and fees for an additional 45,000. The company was also censured by the FCA for sending fake lawyers’ letters to customers in arrears, which led to the company being forced to pay out a further £2.6 million in compensation.
And there was more bad news when the company was also hit with a data breach in 2017 that impacted roughly 270,000 of its customers — more than 240,000 in the U.K. and another 25,000 in Poland. The breach, according to reports, went undiscovered for several days before the firm realized that customer information had been exposed.