Img Source-Wonga.com

The UK’s largest payday lender Wonga has officially stated it will no longer be accepting new Loan applications.

The announcement comes days after the company entered into voluntary administration; handing over control of their operations to an independent administrator as a result of Wonga’s inability to repay its own debts and meet its own running costs

Wonga have confirmed their financial struggles stem from a “significant” increase in compensation claims coming from historic loans and from new lending rules introduced by the Financial Conduct Authority in 2015.

Wonga’s demise

Founded in 2006, Wonga was (and still is for the time being) the UK’s largest payday loan provider; holding between 30% and 40% of the market share.

The company more than tripled their profits to £45.8 million by 2011; issuing almost 2.5 million loans across the UK, Spain, Poland, and South Africa. A year later, employees were informed the company was on its way to being valued at £15 billion by 2015.

However, in 2014, Wonga hit financial trouble. The company were made to pay more than £2.6 million out to customers for “unfair” debt collection practices following reports they had sent threatening letters from non-existent law firms to pressure borrowers into repaying their loans.

Wonga came under further criticism regarding their high interest rates and marketing practices – including their infamous grandparent puppet TV adverts – that were said to unfairly target vulnerable borrowers.

That same year the company were ordered to write off £220 million in debts and interest for 375,000 borrowers it was said should never have been accepted for a loan in the first place.

Loan providers are legally required to perform strict affordability checks on all applicants to ensure they can afford their repayments. As Wonga failed to do this, they suffered both financial and reputational damage.

Chief executive of Citizens AdviceGillian Guy says that “while many of these problems are from before 2015, people still come to us after being sold loans they cannot pay back because rules on affordability are simply not good enough.”

FCA guidelines put further pressure on Wonga

In 2015, the Financial Conduct Authority (FCA) introduced a series of guidelines to the short-term loan industry to protect borrowers.

These included a cap on interest at 0.8% per day, a limit of £15 for charges on default payments, and the total cost of a loan including repayments, interest, and fees never exceeding 100% of the total amount borrowed. This meant if a customer borrowed £150, the most they would ever need to pay the loan provider would be £300.

While many lenders accepted the price caps, these changes had a major impact on Wonga’s profits. The company had previously relied on interest rates of more than 5,853% APR, meaning their business structure struggled under the new FCA guidelines.

General manager of Cambrian Savings and Loans, Ann Francis, believes “Wonga has reaped what it has sown” by going into administration as a result of these complaints.

She said that Wonga’s entire business model had relied “on high interest rates, penalty charges and some unfair debt collection practices. When the regulators clamped down the model was no longer as profitable.”

By the end of 2015, Wonga were reporting losses of more than £80 million.

Wonga no longer accepting loan applications

Having entered into voluntary administration as a result of their debts, Wonga have decided to stop accepting new loan applications for the time being.

In a statement issued by the company, Wonga said that “customers can continue to use Wonga services to manage their existing loans but the UK business will not be accepting any new loan applications.”

Over the coming weeks it will be decided whether or not the company will return to their usual service or liquidate entirely. There is still a possibility that Wonga could raise additional funds by selling any uncleared debts to a third party, but this has not yet been confirmed.

In the meantime, customers will active loans with Wonga are still required to make their repayments as agreed. The Financial Conduct Authority have said they will be supervising the company to ensure these customers receive fair treatment.

Borrowers encouraged to compare before taking out a loan

“It is possible to lend responsibly at reasonable rates and in a way that does not exploit the financially vulnerable,” says Ann Francis of Cambrian Savings and Loans.

You can compare loans with Best Unsecured Loans today. We are an FCA authorised loan broker, not a direct lender. This means that we send your application to our network of direct lenders in order to give you the best deal on a personal loan.

Start off by filling in our application form. Simply tell us how much you would like to borrow, how long you would like to borrow the money for, how much you earn, what you spend your money on each month, and a few more pieces of information – it’ll take a minute or two to complete the form. We will then run a credit check on you. We then send your application to a carefully chosen selection of our expansive network of FCA authorised lenders – we only contact the lenders that we’re sure would want to work with you based on the information you’ve provided us with.

The lenders will each look at your application and they then decide if they would like to lend you the money you have asked for. We gather all of their responses and show you the best offers they have made. This entire process can be completed in a matter of minutes.

This results in you receiving the best price on a loan that suits your terms with a loan provider you can rely on. To get started, click here.

Disclaimer– Please note that We are not an affiliate site for Wonga. This is purely our financial experts’ view.