CONSUMER groups have called on financial regulators to keep greater control of payday lenders as Wonga announced it is writing off £220 million of debts for 330,000 customers after putting in place new affordability checks.
The payday lender will also incur around £35 million worth of costs as it will not impose fees and charges related to a further 45,000 customers.
A Consumer Insight Tracker by Which? shows that between June to August 2014, on average four out of every 100 Scots took out a pay day loan each month.
The Scottish Citizens Advice Bureau service said it had seen a huge increase in people falling into crisis debt to payday lenders and it now sees more than 100 cases every week of people who have got into payday loan debts they cannot handle.
Citizens Advice Scotland research showed 65 per cent of payday loan borrowers in Scotland felt their personal finances had not been checked by the lender before signing them up.
Wonga's move, which comes after the regulator found the company had granted loans to some people after carrying out inadequate affordability checks, means that about 330,000 customers who are more than 30 days in arrears will have the balance of their loan written off and will owe Wonga nothing.
A further 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.
The firm also announced today that it has put stronger lending criteria in place, meaning it will be accepting "significantly fewer" loan applications and some existing customers may find they can no longer use its service to get a loan.
Which? executive director Richard Lloyd said the announcement was "better late than never for struggling borrowers" and was the result of the regulator taking a tougher approach.
"The Financial Conduct Authority must keep payday lenders on a tight leash," he said.
Susan McPhee, head of policy with Citizens Advice Scotland, said: "Given that the company has styled itself as the 'gold standard' of payday lending, this is another embarrassing admission of guilt."
Most of the £220m in write-offs has been placed in Wonga's accounts already and it expects the £35m cost to feature in its accounting for the next year. Earlier this week, Wonga reported its profits had more than halved last year after it racked up £18.8m in costs relating to a scandal over fake legal letters. The company expects to be "smaller and less profitable" in the near term as it works to clean up its reputation.
The FCA has put payday lenders firmly under the microscope since taking over regulation of the sector in April.
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