The Debt Advisor Logo The Debt Advisor Logo
Request a callback
blog

Wonga’s Woes

Published on:August 28, 2018Author:Darcey Budsworth

 

Bev Budsworth from The Debt Advisor Ltd

Call from 5 Live

Saturday afternoon I had a missed call on my phone. Voicemail message was from 5 Live investigating the growing story that Wonga the UK’s biggest payday lender was on the verge of collapse.

5 Live were keen to hear my views and was I able to come on air in the morning to chat about them.  Most listeners had so far expressed the opinion that Wonga had “got what they deserved”.  Not so sure I agreed. The debt management industry shares the high risk label of the pay day loan industry. We too had to jump through significant hoops to get our businesses FCA fit in the run up to the FCA taking over regulation of financial services company.

We have seen how Wonga has evolved over the past 3 years. They have embraced and embedded the culture changes required. Wonga became a much fairer organisation to deal with when proposing debt management plans or IVA’s unlike the guarantor lenders that are now filling the spaces left by pay day lenders.

Pre-2014 poor practices

The unfairness of multiple rollovers was one of the issues investigated by the FCA in their thematic review during 2014. In June 2014 changes to CONC limited rollovers to 2 and also limited to 2 the number of times High Cost Credit firms could use Continuous Payment Authority “CPA” to recover payment. They issued TR15-3 in March 2015 which found inter alia, lenders had failed to recognise when customers were genuinely struggling to repay loans and frequently people were forced to enter into payment plans they could not afford.

Also in June 2014 Wonga agreed a deal with the FCA to pay compensation of £2.6M to around 45,000 customers for unfair and misleading debt collections practices.

Clive Adamson, director of supervision at the FCA, said:

“Wonga’s misconduct was very serious because it had the effect of exacerbating an already difficult situation for customers in arrears. We are pleased that Wonga has been working with us to put matters right for its customers and to ensure that these historical practices are truly a thing of the past.

“The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

 

In October 2014 Wonga announced it was writing off debts of £220M for 330,000 customers after putting new affordability checks in place.

Around the same time Martin Wheatley CEO of the FCA announced the short term credit proposed price caps:-

  • The cost cap at no more than 0.8% of loan to be charged as interest per day,
  • The fixed fees capped at £15 for default charges and
  • The total cost any borrower would repay would be capped at 100% of the amount they had borrowed.

 

I along with many others welcomed the price cap but wondered if this was the beginning of the end for the pay day lending industry. Martin Wheatley was quoted as saying he was “confident that the new rules struck the right balance for firms and consumers. Any lower and there was a risk of not having a viable market and any higher and there would not be adequate protection for borrowers”.

In June 2015 some 6 months after the introduction of the price cap, I was invited to join a panel of a Westminster Forum to discuss amongst other topics, the effect of the price cap. Ian Fiddeman the Policy Director for the BBA felt that the price cap was a catalyst for a very speedy change by pay day lenders and definitely disincentivised irresponsible lending. He added that it had also forced lenders to improve business conduct.

Certainly the attention given to the ability to claim back interest and charges on unaffordable pay day loans appears to have gained significant momentum during late 2015 early 2016 with endless posts and blogs by newspapers, CAB, Money Expert and other. Claims companies seriously ramped up their marketing and adwords campaigns appealing for customers who believe they have had been given loans they could not afford.

According to debt blogger, Debt Camel, “ If you could only repay payday loans by borrowing again or from a different lender – your payday loans were probably “unaffordable”. The regulator says:

“the borrower should be able to make the required repayments without undue difficulty, whilst continuing to meet other debt repayment obligations and reasonable regular outgoings.”

So for a payday loan to be affordable, you had to be able to repay it the next month and be able to pay your other bills and debts. If any of the following points apply, the payday lender should have realised the loans weren’t affordable and stopped lending you more:

  • you often rolled loans or borrowed again soon after repaying a loan;
  • your loans from a lender were increasing in size;
  • some repayments were late; or
  • the loan was a significant part of your income.”

It is hardly surprising therefore that Wonga is now showing signs of significant and mounting difficulties. Earlier this month (Aug 2018) the company received a £10M emergency cash injection from shareholders. At the time a spokesman said the firm was facing  “a marked increase in claims related to legacy loans, driven principally by claims management company activity”.

Who fill the void.

I think it will be a real shame to see lenders like Wonga exit the market. As mentioned above Wonga is supportive of customers’ efforts to repay their debts via IVA’s or debt management plans. They will generally freeze interest and charges and demonstrate forbearance.

As one of the few remaining commercial debt management companies, we are referred cases on a daily basis of customers who cannot access an IVA because they have a lender who is likely to vote against an IVA.  People are accessing different forms of lending particularly guarantor loans and longer term pay day loans.  The lenders quote they will consider each case on its own merit but if debts with these lenders accounts for more than 25% of total debts, it is highly unlikely they will support an IVA. This is not showing forbearance and these lenders should take notice of what has happened to Wonga.

The Debt Advisor Ltd is authorised and regulated by The Financial Conduct Authority no 659920. If you would like help and advice on unaffordable debts, please do get in touch on 03339999600 or request a callback.  We have teams available from 9.00 am to 8,00 pm Monday to Thursday, 9.00 am to 5.30 pm on Friday and 9.00 to 1.00 pm on Saturday.

There is free advice available through The Money Advice Service who you can call on 0800 138 7777.