In the light of Wonga going into administration, lenders are being instructed by the Financial Conduct Authority (FCA) to offer compensation for any mis-sold payday loans. This is to happen even if the compensation payments would result in or threaten the company with bankruptcy.
The FCA says that payday lenders have the obligation to contact their customers about the possibility of compensation if creditworthiness assessments were not compliant. Lenders should also inform the regulator if they are unable to meet their financial commitments due the cost of reimbursing their customers through compensation.
As mentioned, this warning has surfaced after the liquidation of leading payday lender Wonga. The lender had long been one of the most well-known providers of high-cost credit. However, due to a crackdown by the FCA on high-cost lenders put Wonga into the grave as it was not making any profit. Wonga stated that its struggles were due to a significant industrywide increase in borrowers filing claims in relations to past loans. It also pointed the finger of blame at claims management companies for the rise.
The FCA has stated that they are especially concerned about the chain of loans, where a person will borrow on a repeat basis over an extended period of time.
Why did Wonga do into administration?
Wonga was well known for offering loans for a period than less than 30 days and a quick and easy application and approved process. When they started up, they aimed to be the leaders in “instant loans” by providing money within in 24 hours of application on any day of the week. Despite this being revolutionary, there was a catch in that in order to do this, there was very high interest rates placed on the loans. In fact, the interest rates were more than 4,000% in some cases, meaning that a lot of customers found it especially hard to repay their loans.
Wonga also received a lot of bad press in the wake of advertisements which seemingly encouraged students to take out Wonga loans in order to go on holidays. This actually led to a lot of students falling into more debt.
When the FCA took over, they issued a general crackdown which promoted the firm to write off debts which amounted to £220 million for around 330,000 borrowers after new affordability checks in place all to subscribe to.
These changes meant that Wonga saw a loss of just over £37 million per annum as of 2014. Losses actually doubled in 2015 to just over £80 million. After losing out on a whopping £65 million in 2016, Wonga had to finally admit that it had “lost in its way”.
How to claim loan compensation
In order to get compensation, you must be eligible for it. If you believe that you were treated unfairly then you have a case to build upon in order to be reimbursed for the interest that you paid on the loan.
First, you need to gather all the information regarding your loan. You should be able to access this via your online log in to the payday lender. Once you have this information, you should submit a complaint directly to the payday lender you borrowed from and explain why you think you were unfairly treated. For example, you had to take out another loan in order to pay off the one they lent you.
You will likely wait up to 8 weeks for a response from the lender. They will most probably offer you compensation on the spot to avoid you going to the Financial Ombudsman. You can do this if you are unhappy with the terms and they will determine what kind of compensation you should receive, if any.
Read our other guide on how to get a payday loans refund.