Payday loan firm Wonga collapses – because it’s out of cash
Wholesome family image
PAYDAY lender Wonga has collapsed after running out of cash following a surge in mis- selling complaints.
The firm last night said it will call in administrators following a funding crisis, as angry former customers demanded compensation and it was unable to pay them all.
Wonga – which in the past has pursued customers unable to pay interest rates as high as 5,853 per cent – has stopped offering new loans through its website.
Accountant Grant Thornton is being called in to wind up the company, amid fears victims still waiting for compensation will get back a fraction of what they are owed. Would-be borrowers visiting the firm’s website were yesterday greeted with a message which said: ‘While it continues to assess its options Wonga has decided to stop taking loan applications.’
There are growing fears that those owed compensation will get next to nothing if it folds.
The firm’s assets will be sold piecemeal to pay back creditors, and there is unlikely to be much money left for victims. At the end of 2016 in its most recent accounts, the firm owed £108.6million, double the figure from a year earlier. If this has not improved, there is likely to be a long line of firms demanding repayment.
Wonga’s victims are not protected by the Financial Services Compensation Scheme – which covers banks – and are highly unlikely to get a full payout.
Even claimants who have been awarded money after a ruling by the Financial Ombudsman Service, but have not yet actually been paid, are expected to just get a fraction of what they are owed. Grant Thornton will deal with any new complaints after Wonga collapses. It will also take on borrowers’ debts.
They will be told they must continue to pay back what they owe as normal, with any money recovered to be doled out to the company’s creditors.
SNP MP Stewart Hosie, a member of the Treasury Select Committee, urged Wonga to push through compensation claims as fast as possible before administrators step in.
He said: ‘It’s incumbent on Wonga to make good any compensation due to customers for mis- selling before it goes into administration.’
Founded by South Africanborn entrepreneur Errol Damelin in 2006, Wonga came to prominence after the financial crisis in the late 2000s, when cash-strapped families found it hard to borrow from big banks. Its rapid expansion was driven by advertising featuring puppet grandparents, as the company cultivated a wholesome family image. But consumer experts accused it of ‘grooming’ children 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 forced to set up a £ 2.6million compensation scheme in 2014 when it emerged that up to 45,000 struggling customers were sent threatening letters from a fake law firm invented by Wonga staff.
Mr Damelin, 49, quit the firm just as tougher regulations came in and sold his stake for more than £17million – meaning he will face no consequences from its collapse.
Even after the crackdown it still charged borrowers as much as 292 per cent interest a year.
A spokesman for Wonga said: ‘A decision has been taken to place Wonga Group Limited, WDFC UK Limited, Wonga Worldwide Limited and WDFC Services Limited into administration. 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.’ Wonga’s businesses in Poland, South Africa and Spain will continue to trade as normal.
A Financial Conduct Authority spokesman said: ‘The FCA will continue to supervise Wonga once it is in administration and is in close contact with the proposed administrators with regard to the fair treatment of customers. 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.
‘However, the firm is no longer able to issue new loans.’