Tagged: Financial Conduct Authority

Wonga Group to halve UK workforce as part of restructure

Wonga Group will remain as Newcastle United sponsor until at least 2017, despite a major restructuring and cost reduction programme that will see it shed half of the workforce supporting its UK arm.

The company has announced a strategic refocus on its consumer business, which will see its UK headcount drop from 650 to 325 as its alters its business model in light of the rapidly changing short-term credit market.

A spokesman confirmed that all marketing is under review as part of the process.

However, he added:

“As far as Newcastle United is concerned, we have a contractual obligation until 2017.”

It is expected the phased reduction in roles will primarily impact teams that support the UK business from London, Dublin, Cape Town and Tel Aviv.

The remaining roles are expected to be based in London and Cape Town, with plans to close the Tel Aviv office by mid-2015 and the Dublin office by mid-2016.

Wonga will immediately launch a formal 30 day consultation period for those at risk of redundancy and expects all changes to be complete within 12 months.

Andy Haste, who was appointed group chairman in July, said:

“Our focus is on creating a business that meets the demand for short-term credit sustainably and responsibly, resulting in good customer outcomes.

“We’ve already made significant changes, including appointing a new leadership team, implementing a new risk decision engine and tightening our lending criteria.

“However, Wonga can no longer sustain its high cost base which must be significantly reduced to reflect our evolving business and market.

“Regrettably, this means we’ve had to take tough but necessary decisions about the size of our workforce.

“We appreciate how difficult this period will be for all of our colleagues and we’ll support them throughout the consultation process.”

As part of the restructuring plan, Wonga – which has also agreed to sell its small business lending brand Everline to Orange Money Ltd – will now focus on its core consumer businesses in the UK and overseas.

It has likewise filed an application for authorisation with the Financial Conduct Authority in the UK, beginning a regulatory process that can last up to a year.

Source – Newcastle Evening Chronicle, 24 Feb 2015

Loan sharks could take advantage of payday lending caps, according to CAB

Loan sharks could cash in following caps on payday lending, according to the Citizens’ Advice Bureau.

Caps limiting the interest rate and fees instated by so-called payday lenders have been introduced by the Financial Conduct Authority in a bid to protect people struggling with debt.

As of Friday, January 2, companies such as Wonga – who previously had annual interest rates higher than 5,000 per cent – must comply with regulations that will see interest and fees capped at 0.8 per cent per day.

Under the new rules, the total cost of a loan will be limited to 100 per cent of the original sum and default fees will be capped at £15.

While the move has been welcomed by the Darlington Citizens Advice Bureau (CAB), the organisation has warned the changes may cause more vulnerable people to fall prey to loan sharks.

Darlington CAB’s Dawn Gill expressed fears that loan sharks could take advantage of those now unable to access as much money as they need.

She said:

“Caps are a good thing but clients will still want money from somewhere – they’re being protected from high interest rates but companies may not lend as much.

“They may not be able to get as much as they were expecting or anything at all.

 “If they don’t get what they want, they are in danger of reaching out to someone like a loan shark instead of coming to us, for example.

“We haven’t seen it happen yet but the changes are still new and it’s a worry.”

Ms Gill urged payday lenders to work with CABs in order to help their clients manage their finances.

She said:

“The ideal situation would be for payday lenders to refer their clients to us before they take out a loan at all and let us help them to maximise and manage their income.

“I’d advise people to come to us and let us help them find ways to manage.

“We can help with benefits, cutting energy bills or working out incomings and outgoings and priorities.

“There are a lot of people prioritising paying back intimidating people who knocked at their door with money rather than paying their rent or council tax but they could end up losing their home.”

To anonymously report a loan shark, contact the Illegal Money Lending Team by emailing reportaloanshark@stoploansharks.gov.uk

or calling 0300-555-2222.

Source –  Northern Echo,  20 Jan 2015

Payday Lenders Changes ‘could send borrowers to loansharks’

Changes to the payday loans market could drive desperate consumers straight into the arms of loan sharks, a North-East academic has warned.

A cap on the amount that payday lenders can charge customers has been announced by the Financial Conduct Authority.

But Professor Mark Davies, of Teesside University’s school of social sciences, business and law, fears the changes will enable loan sharks to strengthen their positions in local communities.

Prof Davies, who has carried out extensive research into the payday loans market and the needs of borrowers, believes the new measures are a positive move, but will not help all borrowers.

While this is definitely an improvement from a borrower’s perspective, there are a number of remaining issues,” he said.

“In particular, it has been speculated that many payday lenders will leave the market to set up elsewhere or change their business model.

“If legitimate payday lenders leave the industry, this will leave less choice to borrowers, with the possibility of loan sharks strengthening their positions in local communities.”

The changes by the FCA will see payday loan rates capped at 0.8 per cent per day of the amount borrowed. In total, no one will have to pay back more than twice what they borrowed, and there will be a £15 cap on default charges.

The FCA hopes the new regulations will deter people from seeking loans, but Professor Davies argues it is not that simple.

A person in financial desperation, as many of these people are, cannot simply resist a loan,” he said.

“What is needed is a mechanism for identifying and targeting these people at much earlier points, before the pain of irreversible debt mounts up.”

Professor Davies is currently leading a research project to find out more about the types of consumers who consider payday loans and the consequences it has on their lives.

He has gathered detailed accounts from a number of third sector organisations and has held focus groups with people who have taken out payday loans.

The new regulations are welcome but they will not help all borrowers,” he said. “Some will return to loan sharks.

 “Loan sharks have built up strong social connections and networks within local communities that make them more culturally acceptable than lenders such as credit unions.”
Source — Northern Echo, 17 Nov 2014

Payday loan comparison sites target claimants in legalised scam

The Guardian is reporting that payday loan comparison sites are hiding £75 charges for their services in their small print and are specifically targeting benefits claimants.

Visitors, who often do not even get a loan, are having the money taken from their account and their bank details passed on to up to 200 other payday loan brokers, who may also try to take money from the same accounts.

In August alone, Nat West says that there were a million attempts by payday loan brokers to take money from customers’ accounts.

Astonishingly, the scammers are usually authorised by the Financial Conduct Authority, who have given over 5,000 licences to payday loan brokers before actually beginning to check up on them.

According to the Guardian:

“NatWest said it is seeing as many as 640 complaints a day from customers who say that sums, usually in the range of £50 to £75, have been taken from their accounts by companies they do not recognise but are in fact payday loan brokers.”

The banks also claim that scammers:

“. . .push their charges through bank payment processing systems between midnight and 3am, knowing that state benefit payments are added to accounts just after midnight. When the person living on unemployment or disability benefit wakes in the morning, they find their money has already vanished.”

Read the full story in the Guardian

Source –  Benefits & Work, 29 Oct 2014

http://www.benefitsandwork.co.uk/news/2922-payday-loan-comparison-sites-target-claimants-in-legalised-scam

DWP brings new hope to payday lenders

In a move that will bring new hope to struggling payday lenders, the DWP have extended the waiting days for employment and support allowance (ESA) and jobseeker’s allowance (JSA) from 3 days to 7 days from today.

The new rules mean that claimants applying for ESA or JSA will not be entitled for any payments during the first 7 days that they would otherwise be eligible for benefits.

Claimants will not be affected if they have made a previous claim for ESA or JSA in the preceding three months, however, as they will be considered to have already served their waiting days. ESA claimants will also not be affected if they have claimed statutory sick pay immediately before claiming ESA.

Terminally ill claimants are exempt from serving waiting days.

The move has brought condemnation from trade unions and charities, but the chancellor, George Osborne, argues that: “Those first seven days should be spent looking for work and not looking to sign on.”

Last month Wonga was forced by the Financial Conduct Authority to write off £220 million in loans interest and charges to people who should never have been given loans in the first place. There have been calls for other payday lenders to suffer similar penalties.

But the decision by the Coalition to extend the waiting period for ESA and JSA to seven days means that there is likely to be an upsurge in applications for short-term loans by people with no other resources to fall back on.

Given that waiting times for a first payment of Universal Credit (UC) are likely to be around 6 weeks – and up to six months for people whose earnings were too high, according to new government proposals – and bearing in mind that UC also includes a housing costs element, the future for payday lenders is beginning to look rosy again.

Source –  Benefits & Work,  27 Oct 2014

http://www.benefitsandwork.co.uk/news/2919-dwp-brings-new-hope-to-payday-lenders

Northumbrian Water among suppliers accused of Wonga tactics after sending out debt collection letters

A North East water supplier has stopped issuing “frightening” debt collection letters after its tactics were likened to controversial pay day loan company Wonga.

Northumbrian Water was found to be among half of UK suppliers sending correspondence which appears to be from an external debt agency, but is actually from the water company itself.

The news follows June’s ruling by the Financial Conduct Authority (FCA) that 45,000 Wonga customers must be compensated after being sent letters from nonexistent law firm threatening legal action, while similar practices were also highlighted among banks and energy firms.

Northumbrian Water, which stopped the policy earlier this year, used the name Alexander James in large print at the top of the letters, but say it was clearly linked to the company.

In total, 12 of the UK’s largest water suppliers have been found to have taken part in the practice – which water watchdog Ofwat has written to companies with concerns over – while five are still doing it.

Shona Alexander is chief executive of Newcastle Citizens Advice Bureau, which offers free debt advice.

She said:

It is good news Northumbrian Water has stopped using this letterhead and it is disappointing to hear some companies are still using it.

“It is bad practice. By saying Alexander James at the top it looks to the client as a debt collector and that is frightening. Then at the very bottom in small print it says this is part of Northumbrian Water.

“At best it is unfair and causes distress, and at worst it is deliberately misleading.”

A Northumbrian Water spokeswoman said:

“The Alexander James brand was used to encourage customers who were not paying their bill to contact us to talk about a payment plan and to receive debt advice. It was very clear that Alexander James was part of Northumbrian Water Limited.

“We took the precautionary decision to suspend using the brand name the day after the Wonga story broke. After researching why the FCA took action against Wonga, we believe we have complied with best practise as the brand name was registered with relevant financial agencies to ensure transparency and our consumer watchdog, the Consumer Council for Water, was also fully aware we were using this brand name.

“After a review we have now decided that we will not be using the Alexander James brand in the future although our use of it was transparent and compliant.”

Source –  Newcastle Evening Chronicle,  16 Oct 2014

Wonga writes off 330,000-customer debts

Wonga is to write off the debts of 330,000 customers after it admitted it has made loans to people who could not afford to repay them.

The move by the pay-day lender comes after an agreement with the Financial Conduct Authority (FCA) that requires it to make significant changes to its business immediately.

The review means that about 330,000 customers who are currently in excess of 30 days in arrears will have the balance of their loan written off and will owe Wonga nothing.

Approximately 45,000 customers who are up to 29 days in arrears will be asked to repay their debt without interest and charges and will be given an option of paying off their debt over an extended period of four months.

Wonga’s new chairman Andy Haste said: “We want to ensure we only lend to those who can reasonably afford the loan in question and during my review, it became clear to me that this has unfortunately not always been the case.

“I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.”

Source –  Northern Echo,  02 Oct 2014

Calls for criminal investigation of Wonga after claims of misleading debt collection practices

Calls have been made for a criminal investigation of Wonga after claims of misleading debt collection practices.

Newcastle United sponsor Wonga was ordered pay more than £2.6 million in compensation to around 45,000 customers for “unfair and misleading debt collection practices”, the City regulator announced this week.

Now the Law Society has asked the Metropolitan Police to investigate Wonga in the wake of the controversy.

The Society has also called on the Financial Conduct Authority to hand over copies of its investigation and the Solicitors Regulation Authority to examine whether an offence has been committed under the Legal Services Act 2007.

Law Society chief executive Desmond Hudson said: “It seems that the intention behind Wonga’s dishonest activity was to make customers believe that their outstanding debt had been passed to a genuine law firm.

“It looks like they also wanted customers to believe that court action undertaken by a genuine law firm would follow if the debt was not repaid.

“Depending on the precise circumstances of what has happened, that could amount to blackmail and deception, as well as offences under the Solicitors Act 1974 and Legal Services Act 2007.”

Wonga, which struck a controversial four-year sponsorship deal with Newcastle United in October 2012, apologised “unreservedly” for the failings, which took place between October 2008 and November 2010.

Tim Weller, interim Wonga CEO, said: “We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result.

“The practice was unacceptable and we voluntarily ceased it nearly four years ago.”

Source –  Newcastle Evening Chronicle, 27 June 2014

Wonga to pay more than £2.6m in compensation to customers

Newcastle United sponsor Wonga is to pay more than £2.6 million in compensation to around 45,000 customers for “unfair and misleading debt collection practices”, the City regulator has announced.

The UK’s biggest payday lender was found to have sent letters to customers in arrears from non-existent law firms threatening legal action, the Financial Conduct Authority (FCA) said.

In some cases Wonga added charges to customers’ accounts to cover administration fees for sending the letters.

Wonga, which struck a controversial four-year sponsorship deal with Newcastle United in October 2012, apologised “unreservedly” for the failings, which took place between October 2008 and November 2010.

The FCA said consumers were put under “great pressure” from communications sent by fictitious law firms to make loan repayments that many could not afford.

Wonga contacted customers in arrears under the names Chainey, D’Amato & Shannon and Barker and Lowe Legal Recoveries, leading customers to believe that their outstanding debt had been passed to a law firm, or other third party. Further legal action was threatened if the debt was not repaid.

Neither of these firms existed and Wonga was using this tactic to maximise collections by piling the pressure on customers, the regulator said.

Tim Weller, interim Wonga CEO, said: “We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result.

“The practice was unacceptable and we voluntarily ceased it nearly four years ago.”

Source – Newcastle Evening Chronicle,  25 June 2014

‘We can’t cut Wonga links’ says South Tyneside Council boss

A South Tyneside Council leader has denied double standards after the authority launched a crusade against payday lenders.

At a meeting of the full council last week, a motion was passed to introduce a series of measures against high interest lenders.

Action includes blocking access to lenders’ websites from council computers, working with partners to stop the promotion of such firms and to lobby for an extension to planning and licensing powers to prevent them locating in South Tyneside.

But one of the motion’s signataries, Coun Allan West, has now been forced to defend the move after it emerged the authority, along with the four other Tyne and Wear councils, pays into a pension fund which has £233,000 invested in Wonga shares.

Today Coun West, the council’s lead member for adult social care and support services, said legal regulations prevent the authority, which administers the fund, from cutting its “indirect” ties with the payday lender.

He said: “We are raising the issue of payday lending because it is the right thing to do.

“At times of financial pressure, it can feel like payday lenders are the only option, but their extortionate rates can trap people in a vicious circle of increasing debt and interest payments.

“The council administers the Tyne and Wear Pension Fund on behalf of 140 different organisations and we are bound by some very clear legal restrictions as to how the fund is allowed to operate.

“Case law and local government pension scheme regulations specifically require the fund to seek the best possible return on its investments and only allow us to consider social and ethical issues when they have a financial impact.

“The Pension Fund has no direct investments in payday lenders, but does have a very small indirect holding via Pooled Investment Vehicles as part of its global private equity programme.

“This is similar to a private individual investing in a unit trust and having very limited influence on how those investments are made.

“These indirect holdings represent a tiny proportion of the fund’s investments – about 0.005 per cent of its total value, which currently stands at £5.6bn.

“We are very keen to invest as ethically as possible, but the pension fund issue is extremely complex, and something that all local government pension funds are grappling with on a national level.

“There is a lot we can do on a local level to make a difference and ensure that people have an alternative. We have recently reorganised our welfare rights service to ensure it can help more people with financial problems, and The Bridges Community Bank in South Shields is a non-profit service that offers far lower rates.

“There are also encouraging signs that the new Financial Conduct Authority is ready to cap the cost of loans and provide increased protection for vulnerable borrowers.

“In the long term these things will either encourage payday lenders to improve their practices or it will impact on their profits, which in turn would make it easier for pension funds to invest elsewhere while staying within the law.”

Source – Shields Gazette,  17 March 2014