Wonga Group and WDFC UK have decided to place themselves into administration. Insolvency Practitioners from Grant Thornton are in the process of being appointed as administrators to manage the firms’ businesses and affairs.
An announcement on the website said “A decision has been taken to place Wonga Group Limited, WDFC UK Limited, Wonga Worldwide Limited and WDFC Services Limited into administration. The boards of these entities have assessed all options regarding the future of the Group and have concluded that it is appropriate to place the businesses into administration. Chris Laverty, Daniel Smith and Andrew Charters of Grant Thornton UK LLP are in the process of being appointed as joint administrators. Wonga customers can continue to use Wonga services to manage their existing loans but the UK business will not be accepting any new loan applications. Wonga’s overseas businesses continue to trade and are not part of this announcement.”
The FCA has said it will continue to supervise Wonga once it is in administration and is in close contact with the proposed administrators with regard to the fair treatment of customers and recommended that customers should continue to make any outstanding payments in the normal way. All existing agreements remain in place and will not be affected by the proposed administration. However, the firm is no longer able to issue new loans.
Grant Thornton plans to update customers once the firm is in administration.
The company’s most recent accounts showed that it made a loss of 66.5 million pounds in 2016.
Responding to the news the CCTA said”Its view on access to credit and the impact of aggressive regulation and overzealous and sometimes vexatious redress claims made by the Claims Management Companies. These and other factors are the cause of the ongoing operating problems being experienced by Wonga. Access to responsible credit is required by the majority of consumers, to address short and longer term needs. As is much publicised the just about managing (JAM’s) consumers exist in most socio-economic groups, with many families making ends meet until there is a crisis that needs a financial fix.”
“Unauthorised bank overdrafts cost more than many high cost credit loans, so short term credit products like Wonga provided the financial breathing space consumers required. A strong consumer lobby and political muscle produced severe FCA regulation that collapsed the business model for certain short term loan products – but not unauthorised Bank overdrafts. Added to this Claims Management Companies leapt on the back of the change in regulation and targeted short term lending as a potential area for mass claims based on affordability issues. The Industry is currently coping with a dual problem of excessive vexatious claims and the FOS acting as a regulator, rather than an impartial ombudsman service.”
“If the current scenario is allowed to continue consumers will be forced to find different routes to obtain financial assistance which may include the usage of illegal lenders, with the potential threat that comes with it. More than likely friends & family will be used, which is the fastest growing sector for access to credit. Borrowing from friends & family brings with it a degree of psychological pressure and potential family breakdown. Politically there is little if no capital for politicians to suggest that a price for risk model works well for the consumer and business.”
ABCUL’s Head of Policy & Communications, Matt Bland, said: “Few will shed a tear to see the demise of Wonga whose high-profile marketing and sports sponsorship at their peak made them by far the best-known payday lending brand. But the closure of Wonga should not be confused with the end of high-cost lending or even of payday lending. The interest rate cap regime has caused most short-term lenders to adapt their lending practices and many now offer loans on instalment repayment plans which, while still very expensive, are much better for consumers. And while the FCA’s consumer credit regime had produced improvements in practices in many respects, lenders continue to grow and lend to people who find difficulty accessing credit from the mainstream”.
Chris Robertson, UK CEO of Creditsafe said “Since October 2014, our data indicated a steady decline in the state of Wonga Worldwide Ltd.’s financial health and we had designated them in the high or very high-risk category as a result. At this point, we advised companies dealing with the payday lender not to have credit terms as part of their contractual agreement, meaning any money required for goods or services should be paid up front by the lender.”
“The risk score given was based on a number of factors, including a negative debt to equity ratio, as well as poor ratios between its total liabilities, assets and cash reserves. There are always lessons to be learnt from these types of events, and a major one here is the need for suppliers to keep a close eye on how their business partners are performing and to react to any changes in risk profile before it’s too late and they are saddled with unforeseen debt.”