Grant Thornton confirmed for administration of payday loan firm Wonga

04 September 2018 Authored by Consultancy.uk

Controversial pay day lender Wonga has collapsed into administration, following a slew of compensation claims which rocked the company in recent years. Grant Thornton has been appointed to oversee the company’s winding down, after it failed to secure a deal with its own lenders.

Britain’s workers have been placed in a vulnerable position for decades now, with stagnating pay and soaring inflation pushing the majority of citizens toward relying on credit to make ends meet. According to a recent study, some 78% of UK employees subsequently source alternative finance between pay cheques. This has placed 47% of the population in a position where they have experienced difficulties relying on pay day loans in particular – something which has led the UK to the brink of a debt crisis.

A payday loan is a small, short-term unsecured loan, which purports to exist to see staff looking to fund emergency payments for something through until their next pay cheque. However, the providers of such services are not supplying this service out of the goodness of their hearts, rather for a major profit margin, which initially saw them charge four-figure APR interest rates, let their customers repeatedly roll over loans and build up debt they could not afford to repay, and even send out fake lawyers letters to harry tardy payers. The undisputed figurehead of this industry was Wonga.com.

Grant Thornton lined up for administration of payday loan firm Wonga

The good times did not last for Wonga, however, and the bubble has quickly burst for the firm following a long-overdue intervention from the Financial Conduct Authority. In 2014, the market watchdog brought in new regulations and a price capping regime, clipping the wings of the previously limitless segment. The FCA crackdown prompted the firm to write off debts of £220 million for 330,000 customers after putting new affordability checks in place.

Ironically, combined with dwindling customer numbers, this saw Wonga itself suddenly spiral into the red. In 2014, it reported an annual loss of more than £37 million, a steep fall from the £84 million profit reported just two years earlier. The woes of Wonga did not end there however, as the FCA also opened the door to a number of compensation claims from people who felt they had been short-changed by Wonga.

The FCA’s ruling stated that Wonga's debt collection practices were unfair, and ordered it to pay £2.6 million in compensation to 45,000 customers – prompting a backlog of complaints which the company is still understood to be dealing with. As a result, Wonga had been reported as being in the process of weighing up administration procedures, with Grant Thornton confirmed as being in line to oversee the procedure.

Wonga had said it was “considering all options” just weeks after shareholders pumped £10 million into it, in a bid to save it from going bust, but these attempts ultimately proved fruitless. Wonga said the number of complaints related to UK loans taken out before 2014 had “accelerated further”, but said it was making progress against a transformation plan set out for the business, before collapsing into administration at the end of August. Grant Thornton will now act as administrator for the group.

Any claimant who has made a claim but has not received compensation is now unlikely to receive a pay-out, while those with outstanding debt are likely to still be expected to repay, as the loans are anticipated to be sold out as an asset, during Wonga’s administration.

A spokesman for the Financial Ombudsman Service commented on the claims, “We are aware of the recently announced news about Wonga’s administration. Due to the nature of the business, there is no protection offered to consumers under the Financial Services Compensation Scheme (FSCS) in this instance. Once the administrators have been appointed, we’ll speak to them urgently to clarify the impact on the cases we have with us and whether we’ll be able to work any new cases brought to us after today. We do not yet know what, if any, funds will be available to settle complaints.”

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