Daily Management Review

UK Payday Lender Wonga Collapses And Taken Into Administration


UK Payday Lender Wonga Collapses And Taken Into Administration
A large number of compensation claims was the primary reason that the payday lender of the UK, Wonga, collapsed and has been sent into administration, the company had become notorious for its extortionate interest rates and was considered to be a symbol of Britain’s household debt crisis.
There are over about 200,000 customers and they still owe over £400m in short-term loans for the company. The administrators however have informed the borrowers to continue making repayments while it being expected that Wonga’s loans would be sold to another lender.
the Financial Conduct Authority, the UK finance industry watchdog, said that Wonga would remain under its supervision and would look to get 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.”
Critics and anti-Wonga campaigners have criticized the company for “legal loan sharking” and for apparently targeting borrowers who were vulnerable and had small loans that spiraled soon out of control. Some of the customers at some points have faced interest rates as high as 5,853%, which were later capped by ministers in 2015 and the rate now cannot be raised over about 1,500%.
A leading credit rating agency has labelled as unsustainable the huge consumer debt in the UK which is over £200bn and had been taken primarily for products such as cars, credit cards and personal loans. On the other hand, the Bank of England has warned lenders about a “spiral of complacency” over consumers being able to repay their debts.
While Wonga was at its peak, the company had bene called “morally wrong” by the Church of England and Justin Welby, the archbishop of Canterbury, even promised to take the company and other payday lenders out of business.
Wonga’s demise was welcomed by the Justice Finance Foundation, the charity run by Welby. “Today we are seeing the result of the much-needed tougher financial regulations starting to bite”, said Canon Paul Hackwood, a trustee of the foundation.
According to analysts, the cap on interest rates was one of the primary reasons for Wonga’s demise because its business model was ruined despite the company once having set itself for going public and carried a market valuation of £1bn. In addition to the collapse of its business model, the large number of complaints in recent times hastened its demise. The company was accused of issuing fake legal letters to customers in arrears and was ordered to pay £2.6m in compensation in 2014.
A loss of £66.5m was reported by the company in its last accounts, published in September 2017. But the company has assured that its costs and impairments were falling and that it remained a going concern. The company announced a total of customers and £430m in outstanding loans.
But the company had to incur £550 per claim to process in recent time in relation to the large number of complaints that it received. The scale of the complaints can be gauged form the fact that claims management companies PaydayRefunds alone said that it had entered about 8,000 claims against the company just in the last months.