Wonga agrees to limit roll over loans to three months

Wonga, the biggest payday loan company in the UK, has signed up to an agreement that will limit the amount of times a loan can be 'rolled over' to three months, reports The Independent. Hopefully, that should go some way to reducing the temptation for borrowers to allow a debt to grow and grow.

Wonga and businesses like it have been criticised for the rate of interest they charge annually on short-term, small to medium loans, which some see as excessive. Payday lenders have also been accused of encouraging borrowers to extend the repayment period, earning themselves charges along the way.

Payday lenders have always maintained that an annual rate of interest isn't a fair assessment of payday loans, because the loans are meant to be short-term. For example, Wonga says a borrower would typically pay £42.96 in interest if they borrowed £100 for 36 days.

However, when loans are regularly rolled over, the charges can quickly add up to more than the original loan.

The Finance & Leasing Association (FLA), a finance trade body, put together the code of conduct which limits the number of times a loan can be rolled over to three. Wonga is the first and only payday lender to become a member of the FLA and the only one to sign up to the new agreement, although others may do the same.

A spokesperson for debt management company Gregory Pennington commented: "The Office of Fair Trading and the Department for Business, Innovation and Skills are currently looking into payday lender charges, so we could see further changes in this sector in the near future."

Lucy Bower