Wonga on brink after payout rush

TAINTED payday lender Wonga is on the verge of collapse after a surge in customer claims for compensation.

The business – once one of Britain’s fastest-growing financial firms – is said to have lined up administrators to wind it up as early as this week.

Wonga’s board is thought to be on the brink of declaring the firm insolvent as it struggles with compensation claims from years past.

The firm almost folded earlier this month and was only saved with a £10million emergency cash injection. But this fundraising effort attracted the attention of claims management companies, which help customers get compensation in exchange for a cut of the payout.

Claimants can seek compensation if Wonga treated them irresponsibly – for example, by repeatedly giving them loans if they were clearly struggling to pay the money back.

Bosses now fear the firm will not be able to pay all the claims it faces, Sky News reported. Chief executive Tara Kneafsey is said to have told directors several months ago that the payouts were rising rapidly.

Launched in 2007, Wonga seized on the financial crisis to offer ultrahigh interest loans to hard-up consumers. It was a runaway success, and was once described as a ‘unicorn’ firm – a start-up worth more than $1billion.

But critics repeatedly slammed the company for preying on society’s most vulnerable borrowers, and its value collapsed after a string of scandals and a crackdown by regulators.

It became infamous for its adverts featuring knitting grannies, cultivating a family-friendly image which saw it accused of ‘grooming’ chil- dren to take on debt. Behind the scenes, it ruthlessly pursued customers who were unable to pay interest rates as high as 5,853 per cent.

It was made to set up a £2.6million compensation scheme in 2014 when it emerged up to 45,000 customers were sent threatening letters from a fake law firm invented by Wonga staff. The following year, the Financial Conduct Authority introduced a cap on payday loan charges which aimed to protect customers from getting trapped in a spiral of debt.

The company is now said to be worth just £23million, down from a peak of £780million, and is in talks with the FCA about its future.

If Wonga cannot avoid insolvency, administrators are likely to seek a buyer for parts of the business. Another firm is thought likely to take on creditors’ debts if it goes bust.

A spokesman for Wonga said the board would ‘assess all options’ for the future of the business.

‘Assessing all the options’