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Wonga Debt Write-Offs And Your Scottish Protected Trust Deed

6th October 2014

The payday loan industry is experiencing a remarkable decline in its fortunes under new regulator, the Financial Conduct Authority.

Last week it was announced that Wonga, perhaps Britain’s best known payday lender, will have to write-off £220 million of money owed by borrowers. More than 300,000 people will see their debts totally cancelled.

The company will have to write-off the debts for people that it would not have lent money to if they had been using their new, stricter, lending criteria. Affected customers will be notified by Wonga in the coming days.

If you have already started a trust deed in Scotland, and Wonga are one of your creditors, what will happen if your Wonga debt is now to be written off?

If you receive a letter from Wonga with this news you should inform your trustee immediately. The payday lender might be writing to trustees separately, but it’s your responsibility to keep your trust deed provider updated with important developments that affect your case.

Your trustee will likely remove Wonga from the list of creditors that stand to benefit from your arrangement.

Will this mean that your monthly payment reduces because your debt total is now lower? Unfortunately it will not. The amount that you’re expected to pay into your trust deed each month is based upon an affordability calculation rather than how much you owe.

Will your trust deed end earlier because your debt total is now lower? Other than in a few very exceptional cases, the answer is “no”.  You’ll still be expected to pay for the term agreed at the start.

So who will benefit from the Wonga debt being written off? The primary beneficiaries will be your other creditors. With the Wonga debt removed from your creditor list, each of them will expect to receive an enhanced share of the contributions that you have made into the arrangement.

It seems likely that many people that are already using protected trust deeds in Scotland will be included in the list of debts that Wonga will be writing off. In our experience many payday lenders have paid little attention to “affordability” when making positive lending decisions for people who were already heavily in debt.

Payday loans are often used in a desperate attempt to make ends meet prior to finally seeking out debt advice. Following the FCAs action in this instance it seems that payday lenders will have to be much more cautious about this type of lending in the future or face the risk of huge losses imposed by their regulator.

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