What Wonga collapse could mean for customers
Will people have to repay their loan if payday lender goes into administration?

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News that Wonga is teetering on the brink of collapse has left many customers wondering if they will have to repay their loans in the event that the company goes into administration.
Britain’s biggest payday lender has said it is assessing “all options regarding the future of the group” after a surge of customer compensation claims in recent weeks have left the company near bankruptcy.
Why is it close to collapse?
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The Guardian says the flood of claims relates to loans taken out before 2014, “when Wonga was the poster child for outrage in the payday lending industry that resulted in rules capping the cost of borrowing”.
The Financial Conduct Authority ruled four years ago that Wonga's debt collection practices were unfair and ordered it to pay £2.6m in compensation to 45,000 customers.
“Since then tougher rules and price caps have hit profits for payday lenders and dealt a seemingly fatal blow to their business model” says the BBC.
Its current predicament marks a dramatic reversal in fortune for the company which just six years ago was described by its founder as “the platform for the future of financial services”.
The FCA crackdown prompted the firm to write off debts of £220m for 330,000 customers after putting new affordability checks in place.
Combined with the decision to cap the cost of payday loans at 0.8% per day and dwindling customer numbers, this has helped send Wonga spiralling into the red. In 2014, it reported an annual loss of more than £37m, a steep fall from the £84m profit reported just two years earlier.
Do you still have to make repayments on your loan?
Despite reports that accountancy firm Grant Thornton has been lined up to handle a potential administration, Wonga is still in business, and as its website points out is still expecting loans to be repaid as per usual.
Those hoping their loan will be wiped if the company goes bankrupt are also likely to be disappointed. The Guardian says any administrator appointed will be acting in the interests of the company’s creditors, meaning they would seek to get the best financial result possible for those owed money, principally by selling Wonga’s assets.
“Wonga’s main assets are the loans it makes and an administrator would look to sell these to another company, which would want its money back” the paper says.
What about compensation claims?
While those seeking compensation are still encouraged to apply. However, the arbitration process can take several weeks and customers are unlikely to get any money back if Wonga goes bust before a settlement has been reached.
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