By Lyndsey Hall
The UK’s biggest payday lender, Wonga, is ‘on the brink of collapse’ following an influx of customer compensation claims.
Shareholders gave the short-term loan provider a cash injection of £10 million just weeks ago as the firm faced a surge of legacy loan claims. Now, Wonga has reportedly lined up accountancy firm Grant Thornton to handle a potential administration of the company in the event its board believe it’s unable to avoid insolvency.
The wave of claims that hit the company relate to loans taken out before 2014, when Wonga and other payday lenders became the target of campaigners who claimed they fleeced consumers with high interest rates and targeted vulnerable customers with slick marketing. As a result, rules were put in place capping the cost of borrowing.
Recently, Wonga has shown signs of mounting financial difficulty. A spokesperson said the firm was facing “a marked increase in claims related to legacy loans, driven principally by claims management company activity”. If the loan provider falls into administration it would signal a remarkable fall from its previous position as one of the fastest-growing financial companies in the UK. Wonga was once touted for a stock exchange listing that could have valued it at more than $1 billion (£780 million). However, it was recently reported to be worth just $30 million.
A report from Sky News said the recent cash injection from investors had prompted a fresh wave of compensation demands from claims management companies, which have been raking through old loans taken out by consumers.
Have you ever taken out a payday loan? What are your thoughts on the providers’ practices? Are you surprised Wonga could be no longer? Let us know your thoughts in the comments or on Twitter.
Are student loans a tax on the intelligent?
Should the UK become a cashless society?