What customers can expect from Wonga going into administration
Payday loan giant, Wonga, announced last month that it will be going into administration. The online lender rose to success following the financial crisis in 2008 and funded hundreds of thousands of short term loans at rates of interest that were highly criticised by the press, political and religious figures.
Although Wonga was eyeing up an IPO on the New York stock exchange for close to $1 billion, the situation today is very different. Following new regulation in the high cost short term lending industry in 2014, Wonga was forced to pay over £200 million in compensation to customers who had been mis-sold loans.
As compensation claims have continued to rise, the company decided that it will be entering administration through lawyers Grant Thornton and will no longer be providing loans.
What to do if you have an existing loan
Wonga’s website states that if you have an existing loan with the company, that you should continue to pay it off. The same terms of the loan apply, meaning that you are required to pay the same amount as scheduled and stated in your original loan agreement. Failure to make repayments on time will be subject to the same terms including a default fee of £15 if repayment is deferred for longer than three days.
Wonga is not allowed to change the terms of their existing loans because this has been previously agreed with the customer. Undoubtedly, the lender would benefit from different rates or faster repayments in order help repay its debts – however, it is not able to do this. Should a new company take over Wonga or a debt recovery company act on their behalf, one might expect a different approach.
Further compensation claims
The role of mis-sold payday loans and compensation claims has been a key part of the Wonga’s demise and the role of the media has made the idea of claiming a viable option for many previous customers.
Subsequently, one can expect a noticeable rise in ex-customers looking to claim compensation on the grounds that they were not employed, on benefits or unable to repay their loans. Wonga’s website states that you can contact them directly if you believe that your loan was not sold appropriately, however, the priority of compensation claims is not very high given that the company has several other creditors to repay.
The same circumstances may apply to other lenders in the industry. With around 40 to 50 direct payday lenders operating in the UK, they may now experience a new wave of compensation claims at their disposal. Some economists have predicted that other lenders will fall into administration too, although this does not seem to be the case so far.
Rise of alternative products
With heavy criticism and spotlights on the payday lending industry, one can expect a rise in alternative, low cost products. New players in the payday industry are regularly coming to market with low cost loans and flexible overdrafts – although these are still subject to affordability and credit checking.
There is still a vast number of households and individuals with bad credit histories looking for financial products. Whilst they may not be able to access mainstream finance, they may find success through guarantor loan products, which allow you to leverage the credit rating of a third party who co-signs the loan agreement and agrees to repay your loan if you cannot. With rates ranging from 39.9% to 49.9% APR, it is a significantly cheaper alternative to payday lending which is regularly at 1,200% APR and higher.
With such a well-known brand name and identity, one might expect a company to acquire Wonga and rebrand with a new product offering. This could be related to loans and finance or be something completely new. However, it is unlikely that the company will disappear off the shelf like other companies that went into administration like Woolworths and Blockbuster. Wonga has a huge online presence and customer database which is considered valuable to some potential buyers.