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Payday loans lender Wonga has gone bust in quite spectacular style. Despite attempts to restructure the business it has now been scheduled for “an orderly wind down” instead. Wonga became the poster business for the payday loans sector, achieving huge success and then being hit hard by regulatory sanctions. Its loans were described by experts as “unneeded, unwanted, unhelpful, destructive and addictive.” So, not many tears are being shed as the lender bids farewell. But what are the implications for anyone who has a loan with Wonga – and where do you go now if you’re looking for short-term credit?
Wonga was launched in 2006 and was a pioneer of short-term high cost credit. The company grew quickly, backed by investors, and in 2011 tripled profits to £45.8m on revenues of £185m, making 2.5m loans. But with interest rates up to 5,000%, complaints were already being made against Wonga and in 2013, the Financial Conduct Authority (FCA) announced a cap on the total cost of payday loans. In 2014, the FCA forced Wonga to write off £220m in debts and interest for 330,000 customers. Then, in 2015, Wonga reported losses of £80 million, followed by another loss making year of £66 million in 2016. By summer of this year the vultures were circling.
One of the most significant reasons for Wonga’s collapse this year is a general increase in the number of claims being brought against payday loans lenders. Claims management companies are increasingly targeting payday loans lenders on behalf of consumers. In 2015, Financial Ombudsman figures showed complaints against Wonga at just 269. By the end of 2017 this figure was 2,347 in the second half of the year alone. The Ombudsman is also reputedly giving consumers more time to make complaints against Wonga and it’s these claims that have scuppered the lender as it was trying to make a comeback. Of course, Wonga isn’t the only company likely to be affected by compensation claims. These claims are on the basis of loans made before 2014 when the new rules kicked in and could make survival difficult for any payday loans lender that has strayed into misselling or overcharging.
Your debt still exists. Wonga has more than 200,000 customers still owing more than £400 million in short-term loans – if that’s you then the company’s own financial woes don’t release you from your debt. In the short-term the repayments will be overseen by administrators but the failure of the business does not wipe out the loan. Wonga has said that all of its customers should still continue to make payments as per their loan agreements, which are still valid. Anyone struggling with their payments can contact Citizens Advice or StepChange for free advice.
There has been a marked shift in the targeting of payday loans lenders over the past 12 – 24 months. In April 2017 claims management companies were responsible for around 10% of the claims being made against payday lenders. However, by the end of the year that proportion had increased to more than 60%. So, claims companies are now aggressively targeting payday lenders – which could leave many in the same position as Wonga. Whether that would mean a loss to the personal finance market as a whole depends on your perspective. According to James Daley, managing director of campaign group Fairer Finance,
“It’s not surprising that Wonga are in this position because they exploited a market that was loosely regulated. They were in the vanguard of giving people quick access to credit with high prices and high fees and they didn’t treat their customers well.”
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read about Amanda Gillam
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