Flicking through the Metro on the tube this morning, my day was undeniably brightened to read that Wonga has announced its plans to write off the debt of some 330,000 borrowers – at the cost of an eye watering £220 million, with a further 45,000 customers spared paying interest or charges on their loans.
To borrow the poetic words of James Moore in the Independent, ‘slowly but surely the social cancer that is Wonga.com is receiving a much needed blast of chemotherapy’. Harsh words indeed, but with interest rates which last year reached an extortionate 5,853% and horror stories galore, many would agree with Moore’s sentiment.
Before we laud them with praise for a good deed, let’s bear in mind that this decision isn’t voluntary but a result of the Financial Conduct Authority’s unprecedented step of accusing Wonga of irresponsible lending and forcing it to cancel lenders’ debt.
Nevertheless, it’s a sound move for what have surely been a tough few weeks for Wonga’s PR team as news of fake threatening legal letters have cost the firm £2.6 million and a big dent to its reputation. Perhaps unsurprisingly, on Tuesday Wonga posted a 53 per cent slump in pre-tax profits.
Good PR is, of course, going to help Wonga – I wouldn’t be surprised to see a complete image overhaul in a similar vein to some of the big banks – and given Wonga’s past advertising savvy I’m sure it will be a success long term.
However, there are bigger questions to be asked about why this might be the case, despite enough bad publicity to warrant doubling its PR department. Whilst there are clearly concrete commitments in place to accept tighter lending standards in the future, the fact remains that companies like Wonga will continue to thrive in an economic climate where people are willing to take huge risks to their long term futures for a short term fix of cash. Putting a cap on interest rates and lending more responsibly is definitely needed but it does nothing to address the real reasons people are forced to turn to this kind of short term credit.
Surely the government needs to take more responsibility for the success of companies like Wonga and start addressing the root cause, not just slap a plaster on it.
What do you think? Does the government need to do more to tackle this kind of lending and will Wonga’s already damaged reputation recover from this recent crisis?