The so-called ‘payday lender’ Wonga has announced that it will go administration. This follows a period where the company attempted to remain solvent. In recent weeks the company had stopped accepting new loan applications. The company had earlier received a cash injection of £10 million from an investment group, but this was not sufficient to address the company’s finance structural problems.
The main threat came from a series of compensation demands from claims management companies, representing people who had been given loans and who felt that the loans had been mis-sold in some way. Wonga was once one of Britain’s fastest-growing consumer finance companies.
The move in administration comes into effect following U.K. government action to limit the amount of interest that short-term loan companies can charge. At one point Wonga was charging 5000 percent APR (annual percentage rate); this was later reduced to 1500 percent. Such high levels of interest have proved controversial since the people most likely to have used Wonga’s services were those with poor credit history who were unable to use credit cards. The rates of interest were, therefore, mostly directed at low-income people.
For the administration process, Grant Thornton will be acting as administrators. When a company ‘goes into administration’, this means the company is being taken under the management of a court appointed administrator (a licensed insolvency practitioner) appointed by the courts. This leads to the winding up of the company.
In a statement, quoted by the BBC, Wonga say: “Customers can continue to use Wonga services to manage their existing loans but the UK business will not be accepting any new loan applications. Customers can find further information on the website.”
With the collapse of Wonga, and greater restrictions on its competitors, the issue of poverty remains in many households in the U.K. and access to credit is something many households need to turn to. The Institute for Fiscal Studies has noted that debt problems are more persistent among the poorest people, with 40 percent of the poorest fifth of households being arrears or spending more than a third of their income servicing their debts.
