Wonga has stopped accepting applications for loans as it seeks a rescue plan to stop the company from collapsing into administration.
The payday lender has added a notice to its website which states: “While it continues to assess its options Wonga has decided to stop taking loan applications. If you are an existing customer you can continue to use our services to manage your loan.”
The controversial firm has been on the brink of collapse for weeks now, after a surge in compensation claims, and is trying to find investment to keep itself afloat.
Potential administrators have been lined up to step in if it fails to find a rescue deal, and the group has said it is “considering all options”.
The company said its struggles were due to a “significant” increase industrywide in people making claims in relation to loans taken out before 2014. Many lenders have been forced to pay back interest and charges on loans deemed to have been mis-sold on the basis they were unaffordable for the borrower.
The lender blamed claims management companies for the rise in claims, but said it was making progress with a transformation plan set out for the business.
At the moment, loans are still advertised on the group’s website, with a rate of 0.8 per cent per day – the maximum it can charge after the Financial Conduct Authority introduced a cap on payday loan costs in 2014.
Wonga has long faced criticism for the high interest rates it applies to loans and allegations that it deliberately targets vulnerable consumers.
One young professional, who wished to remain anonymous, told The Independent he became reliant on Wonga and other payday loan companies during a period of low paid insecure employment, which coincided with a bout of poor mental health.
“I was in an incredibly vulnerable position healthwise, and in a desperate position financially. I deeply regret using them, as one quick payday loan turned into a spiral of taking out more to pay off the last ones,” he said.
“[Payday loan firms] do not provide a ‘valuable service’ or ‘help people in need’, they prey and leech off the desperation and financial pressure that many people feel in modern society. They don’t make the situation better; instead, often making it worse.
“I cracked a wry smile when I found out the company was on the rocks – to me it’s karma. They’re suddenly facing financial pressures, just like the vulnerable people they prey on daily. Hopefully this is the beginning of the end of the whole lot of legalised loan sharks.”
Meanwhile, debt advisory services said the news would not make much difference to those currently in debt to Wonga.
Graham O’Malley, debt expert at Citizens Advice, said: “If a lender goes into administration, customers should continue to pay back their loan. People who have loans should only change how they pay if they are told to do so by the lender or an administrator.”
A spokesperson for StepChange, the debt charity, said: “If a credit provider is on the brink of collapse, consumers are still liable for the repayments (including interest) while it is still in operation.
“If the company goes into administration, the administrator will be acting in the interests of the company’s creditors, so borrowers can still be chased for outstanding balances but the terms and conditions of their loans (like increasing interest or demanding early repayment) cannot be changed.”
The charity added that anyone who believes they have been mis-sold a loan should log a complaint directly with the provider, and avoid using third party companies who may charge for this service.
Wonga has reportedly been in talks with the watchdog about the potential appointment of administrators. The FCA is concerned about the impact the closure of the group could have on customers who use its short-term loans, according to the Times.
A spokesperson for the regulator said any discussions the FCA engages in are confidential.
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