No tears shed as payday lender Wonga teeters on administration brink

London Briefing: Notorious firm terrified debtors with 5,000% rates and fake threats

Wonga.com ad on a bus passing the Bank of England in London: firm piled fees and penalties on stressed customers. Photograph: Simon Dawson/Bloomberg

Wonga.com ad on a bus passing the Bank of England in London: firm piled fees and penalties on stressed customers. Photograph: Simon Dawson/Bloomberg

 

When a company goes under, or is teetering on the brink, news of its plight is usually greeted with genuine sympathy for its employees, along with nostalgic recollections of how the business used to be in its heyday.

But not if that company is Wonga. Reports of the impending collapse of the notorious payday lender, which fleeced and frightened its vulnerable and desperate customers throughout the financial crisis, have been greeted with undisguised glee on social media.

Although Wonga has been forced to clean up its act in recent years after an outcry over its lending practices, it remains one of the most hated companies in the Britain. One of the more barbed jokes doing the rounds this week was that it had accidentally lent itself £50 – a debt that spiralled to millions within weeks.

And there were numerous tongue-in-cheek offers to lend the firm a tenner – but at an interest rate of 5,000 per cent and only on the proviso the cash is paid back “by teatime on Friday”.

For the group’s 500 employees, the prospect of administration is no joke, of course. And there are fears that if the company does go under, its vulnerable customers will be forced to turn to loan sharks instead.

“No tears for Wonga,” said Prof Nick Butler of Kings College London. “But spare a thought for those living on the edge who will be forced into the far more unpleasant hands of unregulated back-street lenders who charge even more and are ruthless in collecting.”

Wonga, just 10 years old, was once one of the fastest-growing financial companies in the UK, with ambitious plans for a £1 billion-plus stock market flotation.

Specialising in lending to those the high-street banks turned away, it offered short-term, high-cost credit and boasted of approving loan applications online in just 15 minutes.

Desperate customers

With annual interest rates of more than 5,000 per cent, its profits soared – but so too did the horror stories of desperate customers whose debts spiralled out of control as Wonga piled on the fees and penalties for missed repayments on loans that should never have been made.

Wonga: threatened its customers with fake legal letters, adding the fee to their mounting debts.
Wonga: threatened its customers with fake legal letters, adding the fee to their mounting debts.

One of its more scandalous practices was to use a fake law firm to write letters to customers threatening legal action in an attempt to frighten them into paying up. Customers were charged for the fake letters, with the fee added to their mounting debts.

Amid a public outcry – and intervention from the Archbishop of Canterbury – the City regulator imposed a cap on loan rates in 2015 and Wonga’s business model collapsed.

The new rules capped interest rates for payday lenders at 0.8 per cent per day and limited default fees to a one-off £15 payment. Customers could not be charged more than twice the amount of the original loan, including fees and interest.

A number of lenders went out of business as a result, although Wonga struggled on under a new management team. But it has been hit by a flood of compensation claims for the unscrupulous loans it made before the cap came in, forcing the company to take out its own emergency loan a few weeks ago, when shareholders stumped up £10 million to keep it afloat.

Mis-sold customers

As claims management companies continue to demand Wonga compensate mis-sold customers, Grant Thornton is understood to be on standby to move in as administrator. Wonga’s directors say they are continuing to “assess all options” for the business.

Meanwhile, there will be no shortage of high-cost lenders with shiny new products keen to take Wonga’s place should the firm fall into administration. Labour MP Stella Creasy, who has long campaigned against “legal loan sharks”, warned on Tuesday that the lessons of Wonga have not been learned and that lenders were designing new schemes in an attempt to evade regulation.

Calling for the government to impose a cap on the cost of all forms of credit, Creasy said consumers were still being exploited. She cited loans that are underwritten by guarantors, which allow the lender to evade requirements for debt repayment plans.

Without government action, customers are better-protected taking out payday loans than they are with the new high-cost products coming on to the market, she said.

Customers with outstanding Wonga loans may well cheer the potential demise of the payday lender that made so much money on the back of those who had so little, deeming it to be poetic justice.

But that’s all they’ll have to cheer about – if the firm does fall into administration, customers’ debts will live on with whoever takes over the Wonga loan book.

Fiona Walsh is business editor of theguardian.com

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