PAYDAY loan giant Wonga has gone bust after a £10million emergency cash injection from shareholders failed to keep it afloat.
So what does that mean for your debts? Will they be written off? Here’s our guide.
Why has Wonga gone bust?
In 2014, the firm brought in a new management team and wrote off £220million worth of debt belonging to 330,000 customers after admitting handing out loans to people who could not afford to repay them.
Wonga was processing thousands of compensation claims after it was accused of irresponsible lending, targeting vulnerable customers and charging sky-high interest.
In August 2018 it was kept afloat thanks to a £10million emergency cash injection from shareholders.
But Wonga said the cash injection only led to an influx of new claims and the firm has been unable to cope with the demand.
On August 30, Wonga confirmed that its UK and parent companies will go into administration.
In a statement, Wonga said: “The Boards of these entities have assessed all options regarding the future of the Group and have concluded that it is appropriate to place the businesses into administration.”
City regulators are reportedly in talks with Wonga over selling parts of the firm in an effort to save 500 jobs.
The company has stopped taking new loan applications, but is still collecting repayments.
Grant Thornton has been appointed to act as administrator after the company held emergency talks with the Financial Conduct Authority (FCA) over the impact of its collapse on existing customers.
What happens to my debts now Wonga has gone under?
Unfortunately, it doesn’t mean your debts will be written off.
When the firm went into administration, administrators took over the running of the company.
This means that if you have a loan with the payday lender and are still paying it back, then you will have to continue your payments as normal.
Wonga could try to raise funds by selling debts on to other firms, which could then chase former Wonga customers for any outstanding repayments.
If this is the case, the company that buys the loans will have to meet certain regulations set out by the Financial Conduct Authority (FCA).
Do my rights change if my debt is sold?
IF your debt is sold, you’ll owe the new creditor money instead of Wonga.
The debt collector has to follow the same rules that were given to you by the old company when you took out the loan and you will keep all the same legal rights, according to debt charity Step Change.
This means that it can’t increase the amount of interest you pay or add on any charges, unless the original credit agreement specifically says that it can.
Why is Wonga paying out compensation?
Four years ago, the city watchdog, the FCA, ordered door step lenders such as Wonga and Quick Quid to compensate borrowers who slipped into more debt as a result of irresponsible lending before a cap was brought in in 2014.
Customers were charged sky-high interest rates on cash loans they couldn’t afford to pay back, pushing them further into a spiral of debt.
Payday lenders were also accused of specifically targeting vulnerable borrowers.
Recently, the firms were slammed by claimant experts for “dragging their feet” over handing over payouts.
Vincent Vernon from Pay Day Refunds said it is dealing with 32,000 customers and claims a quarter of which are with Wonga.
How do I know if I’m owed compensation?
To get payouts, customers have to prove that their financial situation worsened as a result of the loans and that the loans were irresponsibly lent to them.
They need to include details such as the address they lived in at the time they applied for the loan, and how easy it was to get the cash.
Some of these details can be tricky to recall and James Walker from complaints tool Resolver claims that firms are making it harder by shutting down customers’ online accounts.
Borrowers don’t need their online accounts to lodge a complaint though, as the firm is legally bound to keep a record of all of the loans it has given out over the past six years.
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Can I still claim compensation?
Yes, you can still submit a claim if you feel that you are owed compensation – but you might not see any of the money.
Now it has gone bust, you’ll potentially need to register a claim as a creditor with the administrator.
You’ll be added to a list of all the people who are owed money by the company.
Banks that lent money to Wonga will get a payout first, so there might not be anything left by the time they get to people with unsecured debts, such as customers who say they are due compensation.
How to claim compensation from payday lenders
IF you think you are owed compensation from a payday lender, here’s how to claim according to money blogger DebtCamel:
You’ll need to prove that you couldn’t afford to take out the loan at the time that you borrowed it. If having the loan meant that you couldn’t pay your bills or other debts then you were irresponsibly lent to.
You may also be entitled to compensation if you made any late repayments or if you took out back-to-back loans because this shows that you really couldn’t afford to take out a new loan.
Look back through your emails, bank statements and credit report for evidence.
You’ll need to write a formal complaint letter to each lender explaining how you were irresponsibly lent to and include the evidence.
You’ll need to cite “unaffordable loans” and ask for a refund of the interest and charges you paid, as well as the 8 per cent Ombudsman interest on top.
Make copies of all of the evidence before sending anything in case anything happens to them.
Also ask for the loan to be removed from your credit record.
You can find a letter template on the Debt Camel website.
Wait up to eight weeks to hear back from the lender. If you’re not happy with the answer, or they don’t get back to you, contact the free Financial Ombudsman Service.
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