//Wonga collapse: CfRC calls for Treasury Committee to launch an inquiry

Wonga collapse: CfRC calls for Treasury Committee to launch an inquiry

The payday lender Wonga has collapsed under the weight of claims for rebates and/or compensation from its borrowers arising from the firm’s failure to ensure that people could afford to make repayments prior to making loans. The failure to conduct adequate affordability checks breached the Office of Fair Trading’s (‘OFT’) ‘Irresponsible Lending Guidance’ which was put in place in 2010 and the Financial Conduct Authority’s (‘FCA’) rules and guidance concerning creditworthiness assessments, which have been in place since it took over responsibility for consumer credit regulation in April 2014.

There is an urgent need to secure justice for all of Wonga’s customers (past and present).  The Centre for Responsible Credit has today published a detailed briefing explaining the reasons for Wonga’s collapse.  In it we describe how the FCA failed to provide an adequate redress scheme to compensate Wonga customers for its irresponsible lending prior to 2014; and has also failed to stop irresponsible lending at the company after that date.  This has forced thousands of customers to make their own claims against the company through the Financial Ombudsman Service, for which Wonga was not prepared.

As the company has entered administration, it is likely that the loan book will be sold onto a third party. This will then attempt to collect out existing debts. However, many of Wonga’s current customers are likely to have valid claims for their compensation on the basis that Wonga has failed to conduct proper affordability assessments even after FCA intervention in 2014. In our view, all current customers of Wonga should be provided with an opportunity to challenge their liability prior to the debt being sold on and collected out.

It may also be possible for Government to intervene to ensure that Wonga’s customers are now directed to more affordable, and sustainable, credit providers and provided with debt advice and other support, where needed.

For previous customers, who were overlooked by the FCA’s redress scheme in 2014 and who have not yet made a claim or received their compensation from Wonga, Government – ultimately responsible for the FCA’s failure in this respect – needs to provide a full package of redress. 

Finally, there is also a need to fully learn the lessons from Wonga’s collapse: to assess the reasons why the FCA’s redress scheme was inadequate, and why it’s current approach to irresponsible lending is failing. In our view, these lessons can only be learnt once we are in full possession of the facts concerning the FCA’s decisions. A Treasury Select Committee inquiry should be started to obtain them.

READ FULL BRIEFING

By |2018-09-04T12:00:20+00:00September 4th, 2018|Blog|0 Comments

About the Author:

Damon is the Director of the Centre for Responsible Credit.

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