Wonga Claimants To Receive Only 4.3% As Compensation | Credit Raters

Wonga Claimants To Receive Only 4.3% As Compensation

30 Jan 2020
Approx Reading time: 3 minutes
  • Claimants and experts have voiced disappointment over the decision as around 400,000 claims would receive only 4.3% of the claimed amount.
  • Wonga went out of business in 2018 after the FCA cracked down on the firm due to its predatory lending practices.
Wonga, a payday lender in the UK that was once very popular in the country, went out of business in 2018 due to extreme scrutiny by the Financial Regulatory Authority for charging ridiculously high borrowing rates to its customers. Around 400,000 borrowers had filed claims against the lender for misselling loans. However, they have now been informed that only 4.3% of their total claim value would be compensated. This development is now being communicated to the claimants via letters. Before collapsing, overwhelming consensus had been formed that Wonga was offering short-term loans at a very high cost, taking advantage of the financially vulnerable. According to numerous customer testimonials left on online debt advice forums, borrowing from Wonga has left many in financial ruin. Back in 2014, the FCA had discovered that Wonga had lent money to many borrowers who were most likely to default on their loan obligations. This led to a crackdown on the payday loan industry. So far, over 380,000 claims have been made against the business, all of them eligible, asking to be compensated for the damage caused by the lender’s predatory practices. The claims, in total, are worth around £460 million, making the average claim worth around £1,200. Claimants had already been informed that the compensation was likely to be significantly less compared to the claimed amount. However, many did not expect it to be this low. According to Sara Williams of Debt Camel, borrowers had been let down by the regulatory authority as a result of this decision. Williams highlighted that Wonga had probably violated established regulations governing the payday loans industry for around 10 years, giving out loans to those who could not afford them. FCA requires all lenders to ensure their borrowers are able to afford the loan by conducting a thorough affordability check before approving the loan. Many customers have presented their opinion on the Debt Camel website, expressing anger and frustration as a result of this decision. According to one customer, the damage caused by Wonga amounts to £6,500, of which they will receive under £300. Unfortunately, payday loans are not covered under the Financial Services Compensation Scheme that is governed by the FCA, under which a payment protection insurance (PPI) is offered to all borrowers promising to fully recompensate them in case they have been mis-sold a loan. According to administrators representing Wonga, the approved claims are expected to be released over the following four weeks, which is much later than the initially communicated date of 20th January. Also, the loans against which claims are being refunded would also be removed from the borrower’s credit history. A few borrowers are still indebted to Wonga for outstanding loan balances, although the fate of such loan obligations is uncertain. According to Williams, payments were no longer being accepted by Wonga administrators, and the lender had also stated earlier that outstanding loans would likely not be sold to debt collection services.
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Akbar Lashari

Akbar is a talented news editor who follows the consumer finance industry closely and has written for many famous news & educational websites such as Forbes.