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Short-term Loan Company Wonga Goes into Administration - Where did it all go wrong?

Once one of the biggest payday loan companies in the UK, on August 31, 2018 it was announced that the short-term loan company Wonga had gone into administration. Following an influx of Wonga customer compensation claims, they simply could not handle the volume and cost of these complaints. This announcement occurred just weeks after the company raised 10 million pounds to address compensation claims.

Financial Conduct Authority (FCA) administrators have appointed insolvency practitioners from Grant Thornton to manage the firm’s business and affairs. Though customers with outstanding debts are still required to complete their payments, Wonga will not be taking on any new customers going forward.

Many short-term lenders like Wonga, have been struggling since 2015, when an interest-cap was introduced to the payday loan industry. The FCA ruled that customers must face affordability checks, loan prices must be capped, and that lenders must undergo an authorisation process. Championed by MP’s like Stella Creasy, the FCA decided that daily interest cannot exceed 0.8% and a further time cap of 100% against the amount borrowed was put in place for Wonga loans or any Wonga loans alternative, including Moneyboat.

Who is Wonga and why have they been shut down?

Until the FCA announcement, Wonga had been the UK’s biggest short-term loan provider. Wonga loans operated branches in the UK, Spain, Poland and South Africa. While the UK branch is going into administration, the other three branches remain unaffected. Wonga marketed themselves as convenient and quick, focusing their energy on the usability of the Wonga app and getting customers cash quickly.

Wonga was established under the regulation of the Office of Fair Trading (OFT) before the OFT was replaced by the much stricter FCA. Wonga’s most dubious behaviour, charging exorbitant rollover fees and sending forged legal letters to customers, occurred between the years of 2008 and 2014 when the OFT regulated the short term loan industry.

Wonga’s recent collapse can be attributed to the large influx of compensation claims in the past year. The BBC describes the shift in compensation claims from 2017-2018. In 2017, 90% of Wonga’s compensation claims were organic - meaning the consumer initiated the claim. In 2018, organic claims fell to 10% of total compensation claims. The rest were initiated by claims management companies (CMCs). By waging a large volume of claims, CMCs and organic claims overwhelmed the Wonga loans team.

How do you get a Wonga loan alternative?

Is Moneyboat.co.uk a Wonga loan alternative?

• Both Wonga and Moneyboat offer unsecured loans. No guarantor is required.
• Both Wonga and Moneyboat are FCA authorized firms operating in the UK
• Wonga and Moneyboat are both trusted creditors who offer flexible short-term loans.
• You could log in to a Wonga login or Moneyboat login site from any device that has access to the internet.
• For approval, both Wonga and Moneyboat have to verify your income with industry standard checks.
• After approval, both Wonga and Moneyboat deposit the funds directly in your bank account and automatically collect repayment from the same bank account on loan due date.
• Wonga and Moneyboat don’t offer loans to students as they don’t have a regular income that would cover their loans.
• Wonga and Moneyboat use an automatic checking system when the borrower’s loans are due. They check money directly from their borrower’s bank accounts.
• Wonga and Moneyboat conduct affordability, employment and credit checks on all applicants.

So, what does this mean for UK consumers, and what does it mean for the future of UK’s short-term loan industry? If you are struggling with finance and need a short term loan, there are still many available alternatives to Wonga. Whilst your affordability will be checked, you can rest assured that you are dealing with an ethical lender.

What were the complaints against Wonga?

Wonga has often had a very negative image in the press. Even after the UK regulatory agencies reigned in the short-term loan industry, Wonga continued to engage in dubious business practices. According to Reuters:

Wonga overcharged approximately 200,000 customers. Customers who overpaid will be contacted in coming weeks. Wonga claims that the majority of customers overpaid by less than £5.

The firm may have avoided paying UK taxes by relocating its headquarters to Switzerland.

Wonga sent forged legal letters to customers. In some extreme cases, Wonga even charged customers a legal fee for the letter.

Aggressive advertising offended members of the public. Wonga’s jolly advertising campaign targeted vulnerable members of the public, while minimizing the serious risks of taking out insecure loans.

Wonga employees made personal attacks against MP Stella Creasy on Twitter. In 2012, a Wonga employee used an anonymous Twitter account to call Creasy “mentally unstable”, “mental” and “nuts”. Wonga issued an “immediate and unreserved apology” to Creasy afterwards.

How has the news about Wonga been received?

Considering Wonga’s nefarious history, the British public was not surprised to learn that the corporation is being taken under administration. Many credit unions and foundations have made statements about the news.

Ann Francis, General Manager of Cambrian Savings and Loans stated: “Wonga has reaped what it has sown. It based its business model on high interest rates, penalty charges and some unfair debt collection practices. When the regulators clamped down the model was no longer as profitable.”

Canon Paul Hackwood, Executive Director of Church Urban Fund and Trustee of Just Finance Foundation remarked: “Today we are seeing the result of the much-needed tougher financial regulations starting to bite. It is edifying to see a shift as we seek to influence and reshape both national and local structures and systems to better reflect the needs and interests of low-income households.”

Many Twitter users are seeing the humor in Wonga’s collapse. Tweets critique Wonga’s business practices, and ask why Wonga did not choose to bail itself out of financial ruin by borrowing with 4,000% interest rates.

How will Wonga’s collapse affect the payday industry?

Wonga’s collapse has left other payday lenders with uncertainty. On the one hand, Wonga’s ruin will be an opportunity for UK direct lenders to bring in new customers. On the other hand, Wonga’s broadcasted demise may give the British public pause before trusting other short-term lenders.

For customers still interested in the rainy-day option of short-term loans, it is important to note that not all payday loan companies are the same. The Wonga business model was established during the OFT years, and seemingly, Wonga could not sustain itself under the stricter regulation of the FCA.

Moneyboat, however, takes compliance and transparency very seriously. Rather than conceal information from customers, Moneyboat is always straightforward about the potential benefits and risks of taking out a short-term loan.

Our strict underwriting process allows us to vet customers to help protect customers and our business.

Are Wonga alternative payday loans good for you?

If your financial needs are immediate, a short term loan may help you get out of a bind. Personal loans are commonly used to help cover an emergency, unexpected expenses, car payments and home repairs. A short-term loan may be a good option for your personal circumstances, and Moneyboat is a great option because of our responsible business model and attentive customer service.

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