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Wonga, the UK’s largest payday lender, is considering insolvency following an increase in customer compensation claims in recent weeks.
On Sunday, the company confirmed it was evaluating “all options” after a surge in complaints from customers saying they should not have received loans.
Placing the UK company under administration is seen as an option being considered by Wonga, which targets clients shunned by traditional lenders. In addition to the UK market, Wonga also offers payday loans in Spain, Poland and South Africa.
Sky News reported on Sunday that Wonga had hired Grant Thornton, the professional services firm, to handle a possible administration. Grant Thornton declined to comment.
The development comes just three weeks after Wonga received a £ 10million lifeline from investors to help him stay afloat.
In a statement, the company said the recently raised £ 10million was intended to respond to a significant increase in legacy loan complaints seen in the UK short-term credit industry.
“Since then the number of complaints related to UK loans taken before the arrival of the current management team in 2014 has accelerated further, due to the activity of the claims management companies,” said Wonga .
“In this context of demands, the board of directors of Wonga continues to evaluate all the options concerning the future of the group. “
Wonga did not say how many complaints have increased since his cash appeal. But the move comes a week after Elevate Credit, another short-term lender, warned that high levels of customer complaints, driven by claims handling companies, could put competitors out of business.
Wonga was launched in the UK in 2007 with a commitment to provide a service to borrowers who needed help with unexpected expenses and who could not access credit elsewhere. Its business model has proven to be popular and Wonga has handled millions of inquiries.
But after years of profit from lending at interest rates critics considered sky-high, Wonga has since struggled to adjust to the stricter rules introduced in 2015, including a cap on the interest rate. daily and fees that might be charged by payday lenders.
The company’s annual revenue fell to £ 77.3million from £ 217.2million in a full year up to December 2015.
Wonga clients have complained that the lender has allowed them to take out loans they cannot afford. Payday lenders are required to perform sufficient checks before agreeing to lend.
In the six months leading up to December 2017, the Financial Ombudsman Service received 2,347 new complaints from Wonga clients. Just over half of all Wonga complaints resolved during this period, or 53 percent, were upheld in favor of the consumer.
In a statement to clients on its website, Wonga said it had tightened its lending criteria to “help ensure that we only lend to people we think we can afford to repay.”