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Wonga collapses into administration Wonga collapses into administration
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Britain’s biggest payday lender, Wonga, has collapsed into administration following a surge in customer compensation claims. Wonga, the payday lender that became notorious for its extortionate interest rates and was a toxic symbol of Britain’s household debt crisis, has collapsed into administration after it was brought down by a welter of compensation claims.
In a statement issued shortly after 5pm on Thursday, Wonga said: “A decision has been taken to place Wonga Group Limited, WDFC UK Limited, Wonga Worldwide Limited and WDFC Services Limited into administration. Its collapse on Thursday leaves an estimated 200,000 customers still owing more than £400m in short-term loans. But borrowers were told to continue making payments and administrators are expected to sell Wonga’s loan book to another lending firm.
“The boards of these entities have assessed all options regarding the future of the group and have concluded that it is appropriate to place the businesses into administration.” After emergency talks, the finance industry watchdog, the Financial Conduct Authority, said it would continue to supervise Wonga and seek fair treatment for customers. But it added: “Customers should continue to make any outstanding payments in the normal way. All existing agreements remain in place and will not be affected by the proposed administration.”
Grant Thornton has been appointed as administrator and will seek to find a buyer for the company’s loan book, believed to be about £400m owed by more than 200,000 borrowers. Wonga, known for controversial adverts featuring puppet grandparents , has been condemned over the years by campaigners for “legal loan sharking” and targeting vulnerable borrowers with small loans which quickly spiralled out of control. At one point customers faced interest rates as high as 5,853%, before they were capped by ministers in 2015 and now stand at about 1,500%.
Customers are being told to continue making payments on their outstanding loans. Britain’s consumer debt mountain of more than £200bn – for car loans, credit cards and personal loans – has been labelled unsustainable by a leading credit agency, while the Bank of England has warned lenders about a “spiral of complacency” over consumers being able to service their debts.
“Wonga customers can continue to use Wonga services to manage their existing loans, but the UK business will not be accepting any new loan applications,” the company said. As Wonga fell into administration, the Labour MP Stella Creasy, a prominent payday loan campaigner, tweeted: “Wonga’s customers need to be first in queue for protection for the administrators,” but warned that the vulnerable were still being targeted. “The list of legal loan sharks goes on ... Want to cap the lot of them,” she said.
Wonga, which has been holding emergency talks with the City regulator, stopped taking new loan applications on Thursday. During Wonga’s heyday, the Church of England called the company “morally wrong” and Justin Welby, the archbishop of Canterbury, pledged to compete it and other payday lenders out of existence.
The message on its website says that while it is continuing to assess its options, Wonga will no longer be lending. The Just Finance Foundation, Welby’s charity, welcomed news of Wonga’s demise. Canon Paul Hackwood, a trustee of the foundation, said: “Today we are seeing the result of the much-needed tougher financial regulations starting to bite.”
Customers deluging Wonga’s helpline were greeted with an automated message saying there were delays in answering “because of an exceptionally high volume of calls”. Once lined up for a stock market flotation with a price tag approaching £1bn, Wonga was laid low by a cap on interest rates that ruined its business model – but was tipped into collapse by a more recent flood of compensation claims. In 2014 it was censured for issuing fake legal letters to customers in arrears and was ordered to pay compensation of £2.6m. In recent years, claims management firms have targeted the company over a number of issues and complaints to the Financial Ombudsman Service, an official body that deals with unhappy borrowers, have surged.
In the company’s most recently reported accounts from September 2017, Wonga said it had 220,000 customers and £430m in loans outstanding. Despite losses of £66.5m, it said at the time that costs and impairments were falling and Wonga remained a going concern. In 2015 Wonga and other payday lenders were hit with a price cap on their loans which slashed interest rates to a maximum of 0.8% a day and dealt a further blow to the high-cost credit industry
But since then, Wonga has faced a wave of compensation claims, each of which cost the company £550 to process, whether the claim is upheld or not. Many have come from claims management companies such as Payday Refunds, which said it had entered about 8,000 claims against the lender. In its last accounts, published in September 2017, the company reported a loss of £66.5m, but said costs and impairments were falling and that it remained a going concern. It said it had 220,000 customers and £430m in loans outstanding, figures which are likely to have decreased since then.
Wonga raised an emergency £10m from shareholders in early August, but the extra cash appears to have accelerated the flow of compensation claims. But in recent months Wonga has been hit by a wave of compensation claims, which cost the company £550 per claim to process, whether the borrower’s claim is upheld or not. Many have come from claims management companies, such as PaydayRefunds, which said it had entered about 8,000 claims against the lender in the last six months alone.
The shadow economic secretary to the Treasury, Jonathan Reynolds, said he would not mourn the demise of Wonga. “Its business model was exploitative and immoral. Wonga had become a testament to so much that is wrong with our economy – too many people stuck in insecure employment reliant on short-term debt just to keep their heads above water,” he said. Wonga raised an emergency £10m from shareholders as recently as early August, but the extra cash appears to have accelerated the flow of compensation claims.
Anyone who made a claim but has not received compensation is now unlikely to receive a payout. A spokesman for the Financial Ombudsman Service said: “We are aware of the recently announced news about Wonga’s administration. Due to the nature of the business, there is no protection offered to consumers under the Financial Services Compensation Scheme (FSCS) in this instance.
“Once the administrators have been appointed, we’ll speak to them urgently to clarify the impact on the cases we have with us and whether we’ll be able to work any new cases brought to us after today. We do not yet know what, if any, funds will be available to settle complaints.”
In a statement, Wonga said its board had assessed “all options” and concluded that administration was the only option, with accountancy group Grant Thornton called in to run the failed business as administrators. The Wonga board said: “Wonga customers can continue to use Wonga services to manage their existing loans but the UK business will not be accepting any new loan applications.”
The collapse of Wonga puts more than 500 jobs at risk, mostly in the London area where the company has its head office.
Labour’s shadow economic secretary, Jonathan Reynolds, said he would not mourn its demise. “Its business model was exploitative and immoral. Wonga had become a testament to so much that is wrong with our economy – too many people stuck in insecure employment reliant on short-term debt just to keep their heads above water.
“We need urgent action from the government to change this broken model and review the way lending is regulated.”“We need urgent action from the government to change this broken model and review the way lending is regulated.”
Borrowers hoping to escape their debt burden thanks to the collapse of Wonga are likely to be disappointed. The company’s loan book will be sold to the highest bidder, which will then have the right to receive the interest on the loans. But borrowers hoping to escape their debt burden from a collapse of Wonga will be disappointed. When a finance company goes into administration, its loan book is sold to the highest bidder, which then has the right to receive the interest on the loans. The new buyer cannot change any of the terms or conditions in the loan contract, such as the interest rate.
Guy Anker, of the MoneySavingExpert website, said: “Payday loans are hideously expensive and morally questionable products – and many have been mis-sold to vulnerable customers. They should only be seen as a loan of absolute last resort.
“So to have one fewer payday loan lender – and Wonga was a biggie – is positive for consumers, but of course is very sad for the many staff who will have lost their jobs.”
“If you’re in the financial mire don’t turn to one of these sometimes parasitic firms. Instead, get advice from a debt charity which is there to help, not profit from your suffering.”
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