It’s all over the news that payday lender Wonga has closed the doors on its struggling business and has been forced to call in the administrators — it’s not too big a surprise however, as they aren’t the first payday lender to fall into crisis.
The reason for this household brand to take the decision to throw in the towel, and for all those others that fell before them, was from falling into a financial mire from soaring costs after rulings in 2014 by the Financial Conduct Authority ordering them to pay compensation to vast numbers of customers after breaking rules laid out by the code of irresponsible lending.
Wonga has part-blamed their collapse on the mass of legacy claims made against them. These applications for compensation that keep rolling in are more often than not made via claim management companies utilising multi-platform marketing campaigns to make the loan buying public aware of new compensation that they may be entitled to. In turn these companies drum up new business for themselves from what we’ve learned to accept as a familiar model predetermined by mis-sold PPI claims, many applicants of which received favourable remuneration. If borrowers, or more realistically the claims companies, could prove a loan arrangement was sold without sufficient checks being made that the borrower could not afford to repay the full amount from their income, then it was grounds for a claim.
Covering the amount of compensation was always a big ask. Back at the time of the FCA’s order the company was shown to be mis-selling loans and were forced to write off £220 million of debt to the 330,000 customers they had mis-sold to. It was always going to be a big hill to climb and finally the task of covering the continuing costs from the mass of legacy claims has proved just too much.
Even with an added £10 million investment from its shareholders it hasn’t been enough to float this sinking ship. Now the futures of their 500 plus employees hang in the balance, and too any solid news of what will happen regarding the money owed to Wonga’s many claimants still hoping for some compensation.
There are over 200,000 estimated customers left wondering what’s going to happen to the loans they hold with the payday loan giant. The company’s helpline now offers an automated message warning of delays in response due to the excessively high number of calls.
Again, the FCA have been involved with Wonga to debate how best their customer’s rights should be taken into consideration to provide a fair and just outcome.
The following are ideas of what to expect for existing borrowers, those who have a current claim for compensation, accepted or not, and for those considering whether or not it’s worthwhile making an application with the announcement of this latest development.
For those who currently hold a Wonga loan, sadly not.
All that it means is that the responsibility for collecting the repayments and the management of that money has fallen to somebody else. It also means that Wonga are not allowed to offer any new loans or take on new customers.
Definitely. All existing loans are still legal and valid contracts. Borrowers should continue to make their payments in exactly the same way as before. Those loan agreements made with Wonga have not changed and the debtors are still under the same legal obligation to repay the full amount. They will also be accountable to the same consequences laid out in the contract if they choose not to do so.
If you are an existing Wonga borrower, you shouldn’t waste time thinking about it either. One of the stipulations of a Wonga loan is that a missed payment carries an immediate £15 fine if you fail to cover the amount within 3 days of the due date.
Customers will have access to, and be able to manage their loans with, all existing Wonga services. Any further information coming to light will be available from their website in due course.
The administrators handling Wonga’s financial situation have to try and recuperate as much of the company’s assets as possible in order to repay the debt it has amassed. Initially the administrators will try to repay secured creditors first, generally the banks, before dealing with unsecured creditors (their compensation claimants in this case) as they determine how much money is available to cover all outstanding costs.
The main assets of any company are the items they can sell to accrue funds. In this case the main assets are the loans themselves, so to make resources more readily available it is likely that existing loans will be sold to other credit companies who will take over collecting the payments. The terms and conditions of the loan won’t change in any way; the only difference is that the customer will then be responsible to a new creditor.
If your claim has been approved and an amount of compensation has been agreed then you will likely be considered a priority.
However, given that the company has entered the administration process it suggests that it is unlikely it will be able to produce the funds to honour all existing claims and for those of new applications. Any existing or new unapproved claims will likely be considered low priority on the list of parties Wonga hold outstanding financial commitments to.
Up until this point claims would be managed directly by Wonga or passed on to the Financial Ombudsman Service who would handle the claim on your behalf. Since entering administration any new claims will be made directly to the administrators. The FOS will no longer be assessing new cases previously entitled through the Financial Services Compensation Scheme.
At the moment all compensation claims hang in the balance. Only time will tell how Wonga’s finances will resolve throughout the administration process.
Possibly. If you believe you have a case for compensation and that you fulfil all the criteria of a mis-sold payday loan then you don’t have much to lose by completing an application.
Wonga aren’t the first payday lender to fall into administration where the FCA’s ruling and subsequent compensation claims have proven too much for the lender to manage. Even so, outcomes are still difficult to predict.
In some cases the companies involved continued to honour compensation payments over extended periods of time. This wasn’t always the case though as there were probably just as many who ran out of funds almost immediately and ceased making payments within a few months.
There is no way of predicting which way Wonga will fall, so if you have grounds for compensation it may still be worth making your claim.