After a long, drawn out week for the controversial payday lender Wonga, the business has now been put into administration. The company’s investors, which includes Balderton Capital, Accel Partners, Greylock Partners and 83North, had also pumped an additional £10 million into the firm in an attempt to stop the bankruptcy. But, this has failed and the company’s loan book will now be run by administrators at Grant Thornton.
Wonga have also stopped accepting applications for new loans. In a statement, it said: “it is appropriate to place the businesses into administration”. It added: “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. Customers can find further information on the website.”
Problems in the payday loan industry
The company has blamed a lot of its recent struggles on changes to legislation, which have led to an increase in individuals making claims related to historic loans. Wonga, and the payday loan industry in general, have faced growing criticism over high interest rates and they have been accused of targeting the most vulnerable in society. The FCA has pledged to introduce stricter checks on payday loans; critics claim that these types of loans can cause stress, anxiety, and even mental and physical health problems.
What does this mean for existing customers?
The biggest question facing Wonga’s customers is: what will happen to the existing loans? And will they still need to be repaid? Wonga has told its customers that, despite the administration, money that’s already owed will still need to be repaid. The administrators will take over the daily running of the company. And although no new loans will be provided, existing ones will be sold to new creditors, meaning that borrowers will have the same responsibilities to repay them as before.
But, this doesn’t mean that the businesses they are sold to will be able to use aggressive tactics to collect any money owed. According to the charity StepChange, the rights of borrowers must remain even after the debt has been sold on. The buyer of the loan is required to stick to the original terms and rules that were imposed by the original lender. Therefore, Wonga customers are unlikely to see any changes except, perhaps, the name of the company they are sending money to.