Payday lender Wonga has announced it is no longer taking new loan applications, as speculation mounts over the company’s future.
A message on the homepage of Wonga’s website reads: “While it continues to assess its options Wonga has decided to stop taking loan applications. If you are an existing customer you can continue to use our services to manage your loan.”
Wonga has been loss-making for several years. The troubled lender has come under pressure after thousands of customers claimed compensation for being sold a loan they could not afford and being charged excessive interest rates.
The firm was forced to write off £220 million-worth of debt belonging to 330,000 customers in 2014. At the time, it was ordered to pay £2.6 million in compensation to 45,000 customers by the Financial Conduct Authority (FCA), the financial watchdog.
Wonga says the £10 million emergency cash injection from shareholders given three weeks ago has led to a deluge of new compensation claims. The business appears to be on the brink of collapse.
Independent complaints tool Resolver saw a 210% increase in payday loan complaints over the last financial year, with Wonga accounting for 40% of these.
‘Customers must continue to pay what they owe’
Even if the payday lender goes into administration, customers will still have to carry on paying their debts.
Stephen Wainwright, partner at business recovery firm Poppleton and Appleby, urges customers to carry on making their monthly payments.
“Although Wonga has closed down future loans if you have a contract with them you have to continue servicing these loans until told otherwise. If the company goes into administration and the loan book is sold, customers still have to pay the loans back. If you can’t make the payments then you need to speak to Wonga, as the company is still operating.”
Customers seeking compensation must act fast
Consumers still looking to claim compensation from Wonga need to act fast because it is looking increasingly likely that the company could go into administration. This means it could be a race against time to receive compensation.
Claims are usually settled in a matter of weeks. However, if the company goes into administration before a settlement has been reached then customers are unlikely to receive a pay out, and if the claim has been agreed but not paid, the claimant will join the list of creditors.
Mr Wainwright says the financial institutions currently supporting Wonga now have to assess whether it is worth propping up the company if all investment will be lost to compensation claims.
“They also need to consider whether the name Wonga is now tarnished. They would have to spend a lot of money and time and advertising to build that bridge of trust,” he adds.