Wonga collapses after wave of customer complaints
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Wonga, the UK’s largest payday lender that has survived industry reform, is due to file an administration request after being overwhelmed by a wave of complaints from former clients.
Wonga confirmed Thursday evening that its board of directors has decided to appoint Grant Thornton as directors, ending a difficult week that has already seen the company shut down to new loan applications and hold emergency talks with the Financial Conduct Authority.
Wonga’s foreign companies in Poland, South Africa and Spain will not be part of the administration and will continue to trade, the company said.
The lender received an emergency cash injection of £ 10million this month in an attempt to keep the business afloat, but has since seen a further surge in compensation claims. A person close to the company said complaints have risen 80% since the capital increase.
Each complaint to the Financial Ombudsman Service costs Wonga £ 550 in fees even before compensation is paid, more than the average amount of Wonga loans.
Four units will be administered: Wonga Group Limited, WDFC UK Limited, Wonga Worldwide Limited and WDFC Services Limited.
“The boards of directors of these entities assessed all options regarding the future of the group and concluded that it was appropriate to place the companies under administration,” Wonga said.
“The FCA will continue to oversee Wonga once it is under administration and will be in close contact with the proposed administrators regarding the fair treatment of clients,” the regulator said.
Although widely expected, the appointment of directors seals the fate of a company that survived a crackdown on the payday lending industry by the FCA, which coincided with the creation of the regulator and a desire to establish itself as a hard watchdog. The FCA’s 2014 decision to cap rates and ban revolving loans decimated the wage sector, but Wonga continued.
Still, he struggled to adjust and lost £ 146million between 2015 and 2016, the last years for which accounts are available. Its operating loss was £ 64million, of which around half was provisions for compensation claims.
The company, backed by leading investors such as Balderton Capital and Accel Partners, grew rapidly after its launch in the wake of the financial crisis, offering small, short-term loans with annual interest rates of up to ‘at 5800%.
“We initially thought Wonga was on the better end of the spectrum,” said a former regulator. “But when we looked at his loan models, we quickly changed our mind. . . They lent to anyone.
It sparked even more regulatory anger – along with an injunction to pay more than £ 2million in compensation – in 2014 after the FCA discovered it had sent bogus lawyer letters threatening legal action for unpaid debts.
Wonga fueled most of its growth by reinvesting the proceeds from its loans, but was forced into debt when income began to decline. One of the main creditors is Kreos Capital, a Mayfair-based specialist debt provider that lent Wonga € 30m in 2016.
FCA has worked closely with Wonga to ensure that customers are treated fairly. Any new buyer will have to ensure that the conditions initially agreed by the borrowers are respected. While Wonga had to apply to the FCA for permission to appoint a director, the decision to go into administration ultimately rested with the company’s board of directors.
“Customers should continue to make overdue payments in the normal way. All existing agreements remain in place and will not be affected by the proposed administration, ”FCA said Thursday.
In the administration, all clients with pending compensation claims against Wonga will join the list of his creditors, but experts have said they are unlikely to receive a refund.
Complaints have exploded in the payday loan industry, spurred on by professional claims management firms. Companies, which help consumers get money back in exchange for reduced compensation, have grown rapidly thanks to the payment protection insurance scandal.
However, a growing number of people have turned their attention to payday loans as a new source of income ahead of the PPI payment deadline next year.