Payday lender, Wonga, the short-term loan provider, has been talking with accountancy firm Grant Thornton to handle a potential administration of the company, should its board believe it is unable to avoid falling into insolvency, come only weeks after shareholders injected £10mllion into the business to save it from going bust. The report from Sky News said the company could appoint Grant Thornton as soon as this week.
FCA move to regulate Payday lenders.
The Financial Conduct Authority, (FCA) moved to regulate the industry in 2015, introducing a 0.8% price cap on high cost short-term credit (HCSTC), limits on how many times a payday loan could roll over and stronger guidance on affordability checks and financial health after ruling in 2014 that Wonga was not taking adequate steps to assess customers’ ability to meet repayments.
Payday lenders caused outrage.
Payday lenders have been causing outrage for some time over the methods they use to promote, hand out and recoup unsecured loans which are typically designed to be repaid on a person’s next payday. Interest rates are often so high that the borrower is unable to keep up with repayments.
Earlier this year, a report by comparison website Cash Lady identified NHS staff, council officials and gig economy workers among the most regular applicants for emergency payday loans. In the UK, around 300,000 people a month take out high-cost short-term credit.
The Money Advice Trust told a parliamentary inquiry into payday loans in 2017 that “when young people reach 16 to 24 and are thinking about borrowing, they are more likely to go for high-cost credit than the mainstream alternatives”, purely because the marketing was so “slick” and the online experience so easy.
Director of the Jubilee Debt Campaign, Sarah-Jayne Clifton, said the figures showed “we need the government to take urgent action, not only to rein in rip-off lenders, but also to tackle the cost of living crisis and cuts to social protection that are driving people towards the loan sharks in the first place.”
In 2014, Wonga introduced a new management team and wrote off £220 million-worth of debt belonging to 330,000 customers after admitting offering loans to people who could not afford to repay them.
Earlier this month when Wonga released their statement announcing the £10 million cash injection they said that their struggles were due to “significant” increases, across the payday loan industry, in people making historical loan claims from 2014. They also blamed claim firms for fuelling the rise.
The claims relate to loans taken out before 2014. At that time Wonga caused outrage with its practices of high interest rates and marketing campaigns which some campaigners say were aimed at ‘vulnerable customers.’
FCA guidelines state all firms must be able to show that fair treatment of customers is at the heart of their business model.
What lenders have to tell you when you take out a loan
1. How much it would cost you to repay the loan in total
2. Tell you payday loans should not be used for long-term borrowing or if you’re in financial difficulty
3. Tell you what to do if you have a complaint
Someone taking out a loan for 30 days will pay no more than £24 in fees and charges per £100 borrowed, and if you don’t repay on time, the most you can be charged in default fees is £15 plus interest on the amount you borrowed. An overall cap means that you will never pay back more than twice what you initially borrowed.
Firms are also required to conduct comprehensive affordability checks on all borrowers to ensure they can afford the loan.