The chief executive of a Hull ethical lending group has welcomed payday loan firm Wonga's decision to write off debts for hundreds of families.
In the face of fierce criticism, the firm has decided not to pursue £220m of outstanding loan payments.
The move, which will affect 330,000 customers nationwide, came about after new affordability checks were introduced following discussions with regulators.
Another 45,000 people in arrears with Wonga will not have to pay any interest.
John Smith, head of the Hull and East Yorkshire Credit Union, is pleased by the news but is encouraging borrowers to use alternatives to payday lenders.
He said: "The payday lending model has been seen as flawed for some years by many commentators and customers whose lives have been blighted.
"We are now seeing the firms at the forefront of this having to face up to the problems they have caused.
"Not-for profit credit unions have always been responsible lenders who take the extra care to make sure loans can be afforded and have so far been the only lenders with a legal maximum interest rate."
Hull has one of the UK's highest levels of payday lending, with 11,000 families trapped in debt and £50m owed, according to research by The Children's Society and the StepChange Debt Charity.
The Church of England has been vocal in its opposition to high-interest loans, saying they "get people purposely into debt to farm their assets and gradually milk them dry".
That view was today repeated by the Right Reverend Richard Frith, the outgoing Bishop of Hull.
He said: "I'm pleased with anything that diminishes Wonga's influence and I think they have been very severely criticised and quite rightly so.
"The Wonga issue is one aspect of a very major problem, which is the overall problem of debt.
"The statistics in Hull are frightening and this is one strand of it but I think we've all got to be vigilant to do what we can."
Wonga chairman Andy Haste said: "We want to ensure we only lend to those who can reasonably afford the loan in question and during my review, it became clear to me that this has unfortunately not always been the case.
"I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions."
Payday loans tend to be used by people with a poor credit history to get cash quickly. But although often easier to take out, interest on the loans is far higher than on money borrowed from banks.
Wonga has attracted fierce criticism from Westminster politicians, some of whom described its work as "legal loan sharking".
Hull East MP Karl Turner hit out at pay day lenders last year. He said: "It is often the most vulnerable who get caught up in this trap and I am worried."
In June, Wonga was found to have sent 45,000 threatening letters to customers from non-existent law firms.
Customers in arrears received letters from Chainey D'Amato & Shannon, and Barker and Lowe Legal Recoveries, demanding they pay up. Neither of the firms were real.
The Financial Conduct Authority (FCA) said Wonga had been guilty of "unfair and misleading debt collection practices". It later passed the information to the police.
The FCA said yesterday's announcement by Wonga was part of a voluntary agreement.
Supervision director Clive Anderson said: "This should put the rest of the industry on notice. They need to lend affordably and responsibly."
The write-off will cost Wonga about £5m. Its profits more than halved to £39.7m last year.Who can claim• An estimated two million British people use payday loans.• Statistics suggest most are young, single males earning at least £1,000 a month.• Wonga has written off debts for 330,000 customers who are in arrears of 30 days or more and would have been refused a loan under the company's new affordability checks.• Customers who would have been approved using Wonga's new affordability checks will have to pay back their loans as normal.• Another 45,000 customers up to 29 days behind on payments will pay no interest.• Affected customers will be notified by October 10 by email.• Wonga has urged customers not to use claims companies as they "typically charge an upfront fee".• The company said: "We will be in contact directly with all customers to let them know if they have been identified as affected by the historical affordability issues or not."• Wonga advice from debt charity Stepchange• Citizens Advice Bureau
