US payday lenders step in after Wonga collapse

It has emerged that a number of American-owned payday lenders have stepped into the gap left by the collapse of market leader Wonga last year.

Wonga, which once considered listing itself on the US stock market for $1 billion, went out of business in September last year after admitting it could not cover the amount of compensation owed to a surge of new complainants.

Clampdown

Banking expert Kalyeena Makortoff said that QuickQuid, WageDay Advance and Sunny – owned and operated by American firms Enova, Curo and Elevate Credit respectively – have stepped into the gap despite a clampdown on high cost credit and the recent rise in complaints about payday loan mis-selling.

Examining their third quarter financial results, Ms Makortoff said: “Chicago-based Enova, which also operates Pounds to Pocket and On Stride, saw UK revenue jump 20% to $36.6m (£29m).

Texas-headquartered Elevate Credit operates in the UK under the Sunny loans brand, and saw its own UK revenue jump 23% to $32m, as new customer loans for Sunny rose 45% to $26,671.

“Curo, which is behind WageDayAdvance, saw UK revenue jump 27.1% to $13.5m, while underlying earnings nearly halved from $8.1m to $4.2m. It was helped by ‘a high percentage of new customers’.”

Trouble

But Curo’s latest financial report reveals it could be in the same kind of trouble which affected Wonga after admitting it had to pay $4 million in compensation for complaints made against it.

It said: “We do not believe that, given the scale of our UK operations, we can sustain claims at this level and may not be able to continue viable UK business operations.”

Charge cap

The charge cap introduced by the Financial Conduct Authority (FCA) in 2015 prevented UK lenders charging customers more in fees and interest than the amount borrowed and restricted the number of rollover loans allowed.

The move forced a large number of payday lenders out of the market within just a few months, but Wonga hung on for three years before finally going into administration in the autumn of 2018.

They blamed a large rise in the number of ‘legacy complaints’ – for sales made before the 2015 change in regulation.

Rise

The rise in the number of complaints for the industry was confirmed by the Financial Ombudsman Service (FOS) in a recent report which said: “Complaints about payday loans doubled to around 3,000 in 2015/2016, and tripled to over 10,000 in 2016/2017.

“This increase has taken place in the context of significant regulatory action in this area – including a range of new tougher rules, and particular lenders being told to put right unfair practices.”

Uphold rate

The service – which deals with complaints where lender and borrower can’t agree – said they expected to receive more than 4,500 complaints more than they budgeted for by the end of the year.

The overall uphold rate is currently 60%.

The report added: “Many people who contact us have taken out a number of loans over an extended period of time – during which, at some point, their borrowing became unsustainable.

On average, the number of loans involved is into double figures – and we’ve seen complaints involving over 100 loans.”