Wonga has entered administration! On 31st August 2018, the FCA made an official statement (posted on their official site) stating that the one-time payday loan giant has been placed into administration. The lender is now under Grant Thornton Insolvency Practitioners who were appointed to manage all business and affairs.
The regulator will continue supervising Wonga alongside the administrators to ensure customers are treated fairly. According to the FCA, Wonga customers should continue making outstanding payments normally. Existing agreements won’t be affected; however, Wonga has seized being a payday loan lender since no new loans will be issued.
The recent developments don’t come as a surprise to many given Wonga has been struggling for a long time. Most recently, the lender has been faced with numerous compensation claims. The lender had gone as far as securing £10m in emergency funding in August 2018 to cope with rising claims.
Wonga became notorious for charging its customers extortionate interest rates over a decade ago. In fact, the lender had become a symbol of Britain’s ballooning household debt crisis. The FCA’s announcement on 31st August has left approximately 200,000 customers owing the lender over £400m in payday loans. However, the FCA has instructed borrowers to continue making payments. Administrators are also expected to sell the lender’s loan book.
The role of claims management companies
Wonga attributes its latest predicament to claims management companies whose mandate is to help customers get compensation from businesses. Although Wonga has been struggling to remain profitable after the FCA cap on payday loan costs was introduced in 2015, the recent surge in claims from claims management companies is the reason Wonga has collapsed according to insiders.
One notable player in the lender’s collapse is claims management company, Allegiant Finance Services which focuses on payday loan lending. Over the past two weeks leading to Wonga’s collapse, Allegiant Finance experienced a sharp increase in business. According to Allegiant Finance MD, Jemma Marshall, the media reports about Wonga in the recent past are responsible for the firms increasing business in August.
In a recent interview with Reuters, Marshall stated that Wonga claims make up approximately 20% Allegiant Finance’s business today. Given the lender’s collapse, Marshall expects the focus to shift to Wonga’s rivals.
In the recent past, claims management companies have been focusing on mis-sold PPI (payment protection insurance) which happens to be Britain’s most expensive banking scandal currently given UK lenders have already paid out billions in compensation. However, a cap on the fees claims management companies are supposed to charge on PPI claims has made mis-sold PPI claims less attractive. There is also a deadline (August 2019) for submitting such claims which has made claims management companies shit focus on payday loan complaints.
According to industry experts, Wonga is just the beginning of mis-sold credit claims. Companies like Allegiant Finance are already planning to start handling claims on automatic limit increases for credit card and doorstep loans.
All industry players should be worried given Wonga isn’t the only payday loan lender to be faced by increasing complaints since 2015. According to the Financial Ombudsman Service responsible for settling disputes between financial firms and their customers, a record 10,979 complaints were made against payday lenders in the 1st quarter of 2018 representing a 251% increase compared to the same period in 2017.
Besides Wonga, Casheuronet UK LLC is another large lender in the UK that could be next in line. The lender which is owned by American firm Enova International Inc. operates notable payday loan brands such as Pounds to Pocket and QuickQuid. Like Wonga, the lender has also experienced a sharp increase in customer complaints since 2015.
According to data by the firm and the FCA, Casheuronet complaints have risen from 9,238 to 21,485 between 2015 and the 1st half of 2018. After the FCA cap, complaints rose from 9,238 to 17,712 between 2015 and 2016. According to data published on Wonga’s website, the lender received a record 24,814 grievances in the 1st half of 2018. Casheuronet isn’t that far from Wonga’s plight more so because the lender has already given out a warning in the 2nd quarter results filling (published in July) stating that rising complaints could have material adverse effects on business if the trend continues.
What’s more; lawmakers such as Stella Creasy have become increasingly aggressive in pushing for a cap applying to all forms of credit. Creasy has gone as far as referring to specific lenders (like Provident Financial and Amigo holdings) as legal loan sharks. Wonga’s collapse now leaves other payday loan lenders in the UK in the firing line.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.