Wonga (officially known as WDFC UK Ltd) has been in the payday loan industry for more than a decade, and it’s true to say that theirs is a rag to riches tale, growing from a startup to a multi-million-pound business at a staggering rate.
Cofounders Errol Damelin and software guru Jonty Hurwitz gained venture capitalist funding to create one of the first modern payday lenders.
Yet the story of Wonga has been far from a fairy tale for customers. As well as industry body criticism, amongst Wonga has also been allegations of tax avoidance, investments into the company by the Church of England and abusive tweets from Wonga staff to an MP.
In 2014 the Financial Conduct Authority took authority over payday lender regulation. Their research brought about many important changes. Pivotally, this included the need for increased affordability checks, alongside a cap on charges. As part of this process, Wonga wrote off £220 million in debt, for 330,000 customers facing arrears of 30 days or over. Thereafter, Wonga’s profits fell by 53% a fact blamed on the hemorrhaging of compensation costs paid to customers wrongly treated (payments that ttotalled£18.8 million).
A further hard-hit for Wonga was felt in the same year when the FCA negotiated compensation of £2.6 million for approximately 45,000 customers – this time for ‘unfair and misleading debt collection practices’.
Even if you’ve already been compensated by Wonga directly but never made a complaint about affordability, you may still be entitled to seek redress for your experience as a Wonga customer.
Put simply, it’s because the Wonga’s redress scheme in 2014 may not be compensated you adequately for unaffordable lending checks when considered against a closer merit-based argument.
It’s notable that Wonga has suffered from creditworthiness assessment problems from the beginning (in their earliest days, borrowers were defaulting at a rate of 50%). Something that would lead to the development of their own risk technology. Yet despite this innovative, Wonga still suffered from the same lack of affordability checks as could be found in the remainder of the industry.
In the simplest sense, million-pound lenders failed to protect their customers. They failed because they handed out payday loans with little to no certainty that the borrower could afford the credit. Historically, Wonga was not even asking meaningful questions about a customer’s outgoings.
“The key is whether a firm can demonstrate that it has adequate policies and procedures for making reasonable creditworthiness assessments, and is applying these effectively, to mitigate the risks of unaffordable borrowing”.
–The FCA official guidance on Creditworthiness and affordability
As payday loan refund specialists, we routinely manage successful payday loan claims against Wonga. We have fully grappled with their mistakes, and have an in-depth understanding of the implications they’ve left behind for their customers – customers who should have expected full and thorough affordability checks.