No tears shed as payday lender Wonga falters on the verge of administration

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When a company goes under or on the brink, news of its plight is usually received with genuine compassion for its employees and nostalgic memories of the company’s heyday.

But not if that company is Wonga. Reports of the impending collapse of the infamous payday lender who fleece and scared its vulnerable and desperate customers during the financial crisis have been greeted with undisguised glee on social media.

Although forced to clean up after an outcry over its lending practices in recent years, Wonga remains one of the UK’s most hated companies. One of the more prickly jokes floating around this week was that it accidentally borrowed £ 50 – a debt that skyrocketed into the millions in a matter of weeks.

And there were numerous tongue-in-cheek offers to lend the company a ten – albeit at an interest rate of 5,000 percent and the money will only be paid back under reserve “by teatime on Friday”.

Of course, the prospect of administration is no joke for the Group’s 500 employees. And there are fears that if the company goes 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 think of those who live on the fringes, who are forced into the far more uncomfortable hands of unregulated backyard lenders who charge even more and are ruthless in collecting.”

Wonga, only 10 years old, was once one of the UK’s fastest growing financial firms with ambitious plans for an IPO of over £ 1 billion.

Specializing in lending to those who turned down the high street banks, it offered short-term, expensive loans and boasted of approving loan applications online in just 15 minutes.

Desperate customers

With annual interest rates exceeding 5,000 percent, profits soared – but so did the horror stories of desperate customers whose debts spiraled out of control as Wonga amassed the fees and penalties for missed loan repayments that should never have been made.

Wonga: Threatening clients with fake legal letters and adding the fee to their rising debts.

One of the more scandalous practices was using a fake law firm to write letters to clients threatening legal action to scare them into paying. Customers were billed for the forged letters and the fee added to their rising debts.

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

The new rules capped interest rates for payday lenders to 0.8 percent per day and capped default fees to a one-time payment of £ 15. Customers were not allowed to charge more than twice the amount of the original loan, including fees and interest.

As a result, a number of lenders went out of business, although Wonga continued to struggle under a new management team. But it was hit by a barrage of compensation claims for the unscrupulous loans it had taken before the cap went into effect, which forced the company to take out its own emergency loan a few weeks ago when shareholders raised £ 10m to keep it afloat keep.

Mis-sold customers

With claims management companies continuing to demand compensation from Wonga for mis-sold customers, Grant Thornton will remain on standby as administrator. Wonga’s directors say they continue to review all options for the company.

In the meantime, there will be no shortage of expensive lenders with shiny new products keen to take Wonga’s place should the firm fall into management. Labor MP Stella Creasy, who has long campaigned against “legal loan sharks,” warned Tuesday that the lessons of Wonga have not been learned and that lenders are devising new programs to evade regulation.

Creasy urged the government to limit the cost of all forms of credit, saying consumers were still being exploited. She cited loans borrowed by guarantors that allow the lender to bypass requirements for debt settlement plans.

Without government action, customers would be better protected when taking out payday loans than with the new high-priced products that hit the market, she said.

Wonga loan customers can cheer the possible downfall of the payday lender who made so much money on the backs of those who had so little and consider it poetic justice.

But that’s all they have to cheer about: if the company falls into administration, the customer’s debts live on with whoever takes over the Wonga loan book.

Fiona Walsh is the business editor for theguardian.com

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