Wonga.com compensation claims said to be ‘four times’ higher than expected
The accountants in charge of Wonga’s administration have highlighted that the number of expected compensation claims to affect the company may be ‘four times’ higher than expected. The news which was announced by accountancy firm, KPMG, follows the administration of Wonga in Q4 last year. The previous fintech giant succumbed to disclosure following the rise in compensation claims which has cost the firm over £200 million over the last four years, but this may only be the tip of the iceberg.
Wonga.com was previously seen as the pinnacle of start-up Britain which attracted a wave of international investment, including Israeli backers. The company’s founder had spent most of his professional career working in banking in Israel and around 2013, the company was tipped for a £1 billion flotation. However, the company’s fast growth at the expense of quality underwriting has caught up.
Compensation claims in the high-cost payday loan sector are in full swing, giving customers that were sold expensive loans the chance to recover several hundred or thousand pounds if they believed that a loan should not have been awarded. With soft affordability checks and aggressive collection practices, Wonga.com, funded millions of pounds’ worth of short term loans, as well as other well-known lenders.
However, thousands of individuals have been granted loans that they could not repay due to having poor credit, no income or huge sums of historical debt - and they were subject to late repayment fees, rollovers and damage to their credit score.
The average customer has been able to claim around £850 and Money Saving Expert has spoken of individuals receiving over £1,600. In addition to this, any compensation claim complaint to the Financial Ombudsman Service, legitimate or not, is subject to a £500 administration fee – making the ordeal incredibly costly for firms such as Wonga and others in a similar position such as The Money Shop and WageDay Advance.
Beyond this, the industry is shifting away from high cost lending towards more alternative products. To assist those with bad credit, the guarantor market has grown significantly, with market leader Amigo recently announcing a £1.6 billion valuation. Elsewhere, other lenders in the controversial space have moved towards instalment loans repaid over 12 or 24 months and more flexibility overdrafts too.
The FCA has highlighted the important of comparison sites to help improve transparency and choice for customers, with all lenders needing to be featured on at least one mainstream comparison site such as All The Lenders and My Financial Broker.
Those looking to claim compensation have been told that they do not require a claims management company to do so – since they are likely to take an additional commission for something that can be handled directly.
Furthermore, as explained my Money Saving Expert, when lenders like Wonga fall into administration, the individual that was miss sold a loan is only likely to receive a fraction of the amount due to them. So where possible, for those that have taken out payday loans, should try to request compensation as early as possible.