Payday lender Wonga tells MPs it may use debt collection agencies to chase errant borrowers
Customers who have taken on expensive payday loans could soon find themselves harassed by debt collectors if they are unable to pay back these debts.
Wonga, one of the biggest payday lenders, told MPs yesterday that it was considering using debt collection services in future, and aimed to start a trial shortly.
The lender has arranged more than one million loans over the past five years.
Payday lenders arrange smaller short-term loans for customers, which can be approved within 15 minutes. Due to the size of the loans there are often less stringent credit checks that those imposed by high street banks for credit cards and overdrafts
However, this controversial business, which has boomed in recent years, has come under fire for the high interest rates charged, particularly to customers who fail to pay their loans back within the original term. Wonga, for example, will charge an interest rate equivalent to an APR of 4,200pc if customers borrow money over a year.
Henry Raine, Wonga's head of regulatory affairs was giving evidence before the Public Accounts Committee, which is investigation consumer credit regulations.
MPs expressed concern about the aggressive tactics of some debt collection agencies, which effectively buy the bad debts from a lender at a discount, and then try to recoup this money back from borrowers.
Liberal Democrat MP Ian Swales said he feared this may lead to people being "severely harassed".
Mr Raine said the average Wonga customer earns around £20,000, and that customers borrow an average of £180 the first time they use the lender. The average size of loan for all customers is £257.
Mr Raise said its average customer takes around four loans a year - a figure described by the debt charity Step Change as "alarming".
Stella Creasey, the Labour MP who has spear-headed a campaign to reduce the interest rates charged by payday lenders said she was dismayed to see just how many loans the average customers had a year.
"The aim [of payday lenders] is to find people who are going to have to keep on borrowing because the biggest profits come from people who are going to have to borrow and borrow and borrow."