UK’s largest payday lender Wonga confirms that it is to go into administration

ARTICLE BY: Sarah Harding

Wonga confirmed on Thursday evening that it has appointment administrators to take over its affairs and will be no longer taking new applications.

In 2014 the Financial Conduct Authority found Wonga’s debt collection practices to be unfair, as they discovered it had sent fake lawyers’ letters threatening legal action over unpaid debts. Wonga was ordered to pay £2.6m in compensation to customers. Also in 2014, Wonga wrote off £220m worth of debts, after criticism for its high interest rates and debt collection tactics. Wonga made this decision after discussions with regulators.

Since 2014, tougher rules and price caps have hit profits for payday lenders, and Wonga was dealt a fatal blow – struggling to adapt to profit losses of £146m between 2015 and 2016.

The Financial Conduct Authority has been liaising closely with Wonga to ensure that customers are treated fairly. Any new buyer would have to ensure that terms initially agreed by borrowers are adhered to. While Wonga had to ask the Financial Conduct Authority for permission to appoint an administrator, the decision to enter administration ultimately lay with the company’s board.

Wonga received £10m as an emergency cash injection earlier in the month in an attempt to stay afloat, but due to the 80% rise in compensation claims this capital was not enough. Every complaint reported to the Financial Ombudsman service cost the company £550 in fees before any compensation pay-out.
Wonga Group Limited, WDFC UK Limited, Wonga Worldwide Limited and WDFC Services Limited will all enter administration. However, Wonga has confirmed that its overseas business will continue to trade.

The Financial Conduct Authority will continue to supervise Wonga once it is in administration to ensure the fair treatment of customers. Wonga has advised that 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. In the administration, any customers with outstanding compensation claims against the company will join the list of its creditors, but experts said they were unlikely to receive any payback.

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