Administrators bought into sort out Wonga, the Payday lender following its collapse in August 2018, say the actual number of consumers able to claim compensation is four times higher than initially thought.
The Financial Ombudsman Service told the Treasury Committee in January this year, that there were around 10,500 consumers who had unresolved complaints against Wonga.
Treasury Select Committee Chairman, MP Nicky Morgan said: “This is clearly much bigger than expected. It appears over 40,000 people, and rising, may have an unresolved complaint about mis-sold loans. Wonga’s creditors and claimants are now in the hands of an administration process, waiting to discover what their share of Wonga’s assets will be, which could now be smaller as more people make claims. The issue raises questions about whether the coverage of the Financial Services Compensation Scheme should be widened to provide protection for customers of high-cost short-term lenders and those of firms that later go bust.”
New rules concerning high cost lending came into place in 2015 and forced companies to cut fees and introduce stricter affordability tests. Since then, more than 100 firms, including Cash Genie, ceased trading after a cap of 0.8% daily interest limit was enforced by the FCA. Despite these stricter rules, customers still ended up paying back more money than they had expected. The FCA said payday lenders must consider the “severity of the consumer detriment that might have arisen” from loans granted in the past, and consider whether they should begin a “redress or remediation exercise, which may include contacting customers who have not complained.”
What Went Wrong With Wonga?
Wonga became known for its extortionate interest rates and was linked to the UK’s household debt crisis. Its collapse left an estimated 200,000 customers owing more than £400 million in short-term loans. Borrowers were told to continue making payments, whilst administrators were bought in.
The Financial Conduct Authority ruled four years ago that Wonga’s debt collection practices were unfair, and ordered it to pay £2.6 million in compensation to 45,000 customers.
They were hit further when an interest rate cap bought in by the FCA in 2015 ruined Wonga’s business model, meaning less profit for the company. In September 2017, Wonga reported a loss of over £65 million,and in August 2018, the Payday lender was forced into administration after a flood of compensation claims were made by customers.
The Shadow Economic Secretary, Johnathan Reynolds said of Wonga’s demise: “Its business model was exploitative and immoral. Wonga had become a testament to so much that is wrong with our economy. Too many people stuck in insecure employment reliant on short-term debt just to keep their heads above water.”
Will Wonga Debt Be Written Off?
Unfortunately for Wonga customers, their debt still needs to be honoured. This means customers still need to make the same payments they had before until the loan is cleared, the only difference is the administrators are now collecting the debt.
The FCA said in a statement: “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.”