Payday lender Wonga pushed to the brink as claims management companies look for ‘next PPI’
Payday lender Wonga is considering insolvency among the options as it tries to deal with a deluge of complaints from claims management companies looking for “the next PPI”.
Wonga said it is assessing “all options” for the group, which is struggling under the burden of a large number of compensation claims.
The controversial firm raised £10m from existing shareholders at the start of the month in a move designed to cover the cost of increased payouts. However, a spokesperson for Wonga said: “The number of complaints related to UK loans taken out before the current management team joined in 2014 has accelerated further, driven by claims management company activity.”
Some industry experts say claims management companies – which seek compensation on behalf of customers for a fee – have set their sights on the payday lending sector, with the deadline for lucrative payment protection insurance (PPI) claims in August 2019 approaching.
Sara Williams, the debt campaigner who runs the Debt Camel advice website, told CityAM: “Claims companies have been looking for ‘the next PPI’ for a while, and many of them think they have found it with payday loan affordability complaints.”
The sector will also be regulated by the Financial Conduct Authority after April 2019, taking over from the Claims Management Regulator.
Accountants Grant Thornton have been working with Wonga in recent months, and could be appointed as administrators as soon as this week, Sky News reported.
The troubles for Wonga started after regulators clamped down on the eye-watering interest rates charged by some firms in the sector for short-term loans, after the sector attracted controversy and intense scrutiny.
The firm’s current troubles stem from loans made before 2014 which regulators said it must pay back because its affordability checks were not stringent enough.
A Wonga spokesperson said: “The Wonga board continues to assess all options regarding the future of the group and all of its entities.”