Due to the rise in compensation claims in the last few years, lenders have warned that this could lead to an increase in payday loan companies going into administration.
This was the case for Wonga.com, which recently collapsed after being swamped with compensation claims from consumers claiming they were mis-sold loans.
Now, WageDay Advance is the latest firm to go into administration. However, it’s still unclear how this will affect consumers who have paid off their loans, but should still be entitled to compensation from the lender.
This means that these customers have become unsecured creditors, and, therefore, are expected to only be paid a fraction of the compensation they are entitled to.
This was detailed in emails sent out to WageDay Advance customers following its administration earlier this year.
WageDay Advance is a brand name of CURO Transatlantic, and has been operating as a short-term, high-risk loan provider. But recently it’s been accused of mis-selling loans to people who couldn’t afford to pay them back.
There have been thousands of complaints from customers about the company’s practices, including many made through claims management firms.
It’s estimated that over 300,000 people in the UK are eligible for compensation, to a total of up to £223 million, including interest. The average pay-out is around £850 per customer.
This highlights a wider problem with the levels of personal debt individuals are taking out. There has, according to debt charity StepChange, been a “small, but worrying” increase in the uptake of payday loans, especially among young people.
As noted by Phil Andrew, chief executive of StepChange: “While debt can strike at any age, on average our clients are getting younger. It is important that policymakers work to help turn the tide and prevent debt becoming an inevitable rite of passage for young adults.”
With the increase in consumers taking out loans they will struggle to pay back, comes an inevitable increase in the number of compensation claims. And any experts believe that this could result in more cases like Wonga and WageDay Advance, in which consumers are unable to get the compensation they are entitled to.