Wonga 3Nearly all of Britain’s hundreds of payday lenders will be wiped out once new regulations come into force early next year, the Financial Conduct Authority said on Friday, days after Wonga was forced to write off the debts of 330,000 of its customers.  

The FCA said 99 per cent of the UK’s 400 payday lenders will be forced to shut down when its cap on the cost of credit comes into effect.  Wonga, which reported a halving of profits this week, is expected to be one of only four survivors.  Wonga chief Andy Haste admitted that the business will shrink and requires a fundamental change.  The was recently named in a debt collection scandal whereby Wonga had used the names of fictitious law firms for debt collection purposes.

Payday lenders, which typically offer small loans online at high interest rates, enjoyed years of explosive growth after the financial crisis, tapping demand from cash-strapped borrowers in need of instant cash for short periods.  But critics have accused them of preying on the poor, pointing to interest rates that sometimes exceed 5,000 per cent on an annualised basis.

A report by the Office of Fair Trading last year said that more than one in four payday loans were not paid back on time and were rolled over into fresh debt, increasing the borrower’s costs.

Source: Financial Times