Wonga collapse leaves other UK payday lenders in the crosshairs
LONDON (Reuters) – The collapse of Britain’s biggest payday lender Wonga is likely to put pressure on rivals amid an increase in customer grievances and calls from some politicians for tighter regulation. The British child star of short-term, high-interest loans collapsed on Thursday, just weeks after raising £ 10million ($ 13million) to help him cope with rising demands for compensation.
Wonga said the surge in claims was due to so-called claims management companies, companies that help consumers get compensation from businesses. Wonga had already experienced difficulties following the introduction by regulators in 2015 of a cap on the interest that she and other players in the sector could charge on loans.
Allegiant Finance Services, a payday loan-focused claims management company, has seen an increase in business over the past two weeks due to media reports of Wonga’s financial woes, its chief executive told Reuters , Jemma Marshall.
Wonga’s allegations account for around 20% of Allegiant’s business today, she said, adding that she expects the industry’s attention to turn to its rivals after the demise of Wonga.
One of the biggest boons to the claims management industry has been payment protection insurance (PPI) against bad sales – Britain’s costliest banking scandal that has seen UK lenders pay out billion pounds in compensation.
But a cap on the fees that claims management companies can charge in PPI complaints and the August 2019 deadline for submitting those claims has caused many people to focus on payday loans, Marshall said.
“This is just the starting point for poorly sold credit, and it will define the landscape after PPI,” she said, adding that her company plans to start handling claims on automatic credit increases. limit credit cards and home loans.
The Consumer Finance Association, a trade group representing short-term lenders, said claims management companies use “disturbing tactics” to win deals “that are not always in the best interests of customers.”
“A business collapse does not help people who want access to credit or those who think they have grounds to file a complaint,” he said in a statement.
INCREASE IN COMPLAINTS
Wonga is not the only payday lender to be affected by an increase in complaints since 2015. tmsnrt.rs/2LIfbKa
The UK Financial Ombudsman Service, which resolves disputes between consumers and financial companies, received 10,979 complaints against payday lenders in the first quarter of this year, an increase of 251% over the same period per year latest.
Casheuronet UK LLC, another large payday lender in Britain owned by the US company Enova International Inc ENVA.N and operates brands such as QuickQuid and Pounds to Pocket, has also seen a significant increase in complaints since 2015.
Data released by the firm and the Financial Conduct Authority show that the number of complaints received increased from 9,238 in 2015 to 17,712 a year later and to 21,485 in the first half of this year. Wonga said on its website that it received 24,814 complaints in the first six months of 2018.
In its second quarter earnings filing, released in July, Enova International said the increase in complaints had come at significant costs and could have a “material adverse effect” on its business if it continues.
Labor lawmaker Stella Creasy this week called for the interest rate cap to be extended to all forms of credit, calling on companies like backing loan company Amigo Holdings AMGO.L and financial foresight PFG.L “legal usurers”.
Glen Crawford, CEO of Amigo, said his clients are not financially vulnerable or over-indebted and they use their loans for thoughtful purchases like buying a car.
“Amigo offers a responsible and affordable medium-cost credit product to people who have been turned down by banks long before the wage market has changed,” he said in a statement.
Provident declined to comment.
In a note released Friday, Fitch Ratings said the payday loan business model that developed rapidly in Britain after the global financial crisis “appears to be unsustainable.” He expects lenders focused on high-cost unsecured loans to adapt their business models to cheaper loans for more secure borrowers.
($ 1 = 0.7690 pounds)
Reporting by Emma Rumney; edited by David Evans