As regulation took effect the payday lender faced increasing compensation claims
Debt charities and campaigners have welcomed the demise of Wonga, the controversial payday lender described as “morally wrong”, after it collapsed into administration.
JustFinance, the debt charity, said tougher regulation was making its mark as the lender called in administrators last night.
Its collapse leaves around 200,000 customers still mired in misery, owing more than £400 million in short-term loans.
However borrowers are being advised to continue making payments with administrators expected to sell Wonga’s loan book to another lending firm.
Canon Paul Hackwood, a trustee of Justfinance, said: “Today we are seeing the result of the much-needed tougher financial regulations starting to bite.”
Wonga has been hit by a wave of compensation claims costing the company £550 per claim to process whether the claim is upheld or not.
Many have come from claims management companies, such as PaydayRefunds, which said it had entered about 8,000 claims against the lender in the last six months alone.
Payday lenders were hit with a price cap on their loans in 2015 which slashed interest rates to a maximum of 0.8% a day restricting profits in what was previously an unhinged industry.
The Church of England had hit out at Wonga, calling it "morally wrong".
A spokesman for the Financial Ombudsman Service said: “Once the administrators have been appointed, we’ll speak to them urgently to clarify the impact on the cases we have with us and whether we’ll be able to work any new cases brought to us after today. We do not yet know what, if any, funds will be available to settle complaints.”
Hollywood star Michael Sheen, who campaigns against payday lenders, said the government should now support the growth of ethical lenders.
The actor, who is speaking at the Social Enterprise World Forum in Edinburgh in September, said: “Wonga thrived because of demand. That demand is not going to go away. The real danger is that those customers are going to go to possibly even worse places. The opportunity is there, there are alternatives – there are fair and responsible credit providers.”
