Wonga has become the first payday lender to limit rollover payday loans. They have signed up to a new code of practice agreeing to limit the number of times a customer can rollover their payday loan to a maximum of 3.
The new code of practice has been introduced by the Finance & Leasing Association, a credit trade body Wonga is signed up to although it should be noted that Wonga are the ONLY payday lender affiliated to the FLA.
8 of the 10 largest payday lenders are actually signed up with the Consumer Finance Association and they will be making similar adjustments to their own code of practice within the next few months.
“As an industry, we are looking at various measures including limits on number of rollovers, how we treat individuals that get into trouble, transparency in advertising and clear consequences for non-compliance with the code. We anticipate the launch of our enhanced code in the spring,” the CFA said today in a statement.
The move was widely expected with the Office of Fair Trading curently reviewing both the charges and the practices of the payday loan industry and have already made noises about not being happy with the practice of allowing loans to be rolled over indefinitely. The industry hopes to preempt the calls for legislation by showing the government they have their house in order.
Despite the fact Wonga are the dearest payday lender currently operating in the UK (see our payday comparison chart), they are also one of the most successful but their critics claim that success is built on day time tv ads which target the unemployed or stay at home moms. We reported only recently how Wonga had come under fire for targeting students and had been forced to remove several promotional pages from their website as a consequence.
Wonga currently charge £36.72 for a £100 loan over a 1 month period compared to just £20 charges for the same loan from Quick Quid. If a customer wishes to rollover the Wonga loan into another month they will be asked to pay the charges already incurred and then the £36.72 is added to the loan amount again and becomes due at the end of the next month.
As you can see, if the loan is rolled over 3 times the customer will have paid just over £110 in interest and charges – more than the amount borrowed and just £10 short of double the amount you would have paid with the same loan from Quick Quid. It is this build up of charges that critics claim have forced some vulnerable consumers into out of control debt.
With The Household Income Tracker today releasing a report claiming 25% of consumers who took out some form of payday loan in Northern Ireland failed to make the repayment on time, the pressure is mounting on the industry to voluntarily change some of their practices – or have them changed for them with new legislation.