Britain’s biggest payday lender Wonga Group collapsed on Thursday (August 30), saying it had decided to put its UK operations into administration against a backdrop of widespread criticism for high interest rates and marketing tactics used by the industry.
Privately owned Wonga, which initially enjoyed rapid growth via its short-term, high-interest lending, often to troubled borrowers, fell into difficulty after regulatory scrutiny of so-called payday lenders led to a cap on interest rates.
Wonga said in an email that it had decided to place a number of its operations into administration, a form of creditor protection.
“The Boards of these entities have assessed all options regarding the future of the group and have concluded that it is appropriate to place the businesses into administration,” it said.
Wonga said its overseas businesses were not part of the announcement.
In its statement, the company said that its UK business would not be accepting new loan applications, but its customers could continue to use its services to manage existing loans.
“The FCA will continue to supervise Wonga once it is in administration and is in close contact with the proposed administrators with regard to the fair treatment of customers,” Britain’s financial watchdog said in a statement.
Wonga had just raised 10 million pounds ($13.01 million) from investors amid a surge in compensation claims related to loans taken out before 2014. (Full Story)
Media reports had pegged Wonga’s valuation, before its fresh capital injection, at 23 million pounds, a far cry from an estimated valuation of around $1 billion when it was considering a New York stock market listing.
Wonga shot to prominence in the years after the financial crisis, filling the gap left by big banks as they retreated from short-term lending. At its peak in 2012, it was making a pretax profit of over 1.5 million pounds per week.
But Britain’s payday lending industry has been heavily criticised by campaigners who say its high interest rates and marketing tactics have been unfair to vulnerable borrowers.
Wonga, founded by South African entrepreneur Errol Damelin, also ran into trouble because of its debt collection practices, including sending customers fake legal letters, which were exposed by Britain’s consumer watchdog.
The firm went on to appoint former RSA Insurance Group Chief Executive Andy Haste as chairman in 2014. Haste vowed to overhaul the way the business was run, including a possible name change.
Wonga is now in the process of appointing Grant Thornton as administrators. The company’s most recent accounts show it made a loss of 66.5 million pounds in 2016.