Wonga, perhaps Britain’s best-known payday loan firm, is said to be on the brink of collapse.
The firm, which was once believed to be worth more than £770 million, was thrown a lifeline by investors recently when they pumped £10 million in fresh capital into the company which a spokesman said was needed because of the increased number of compensation claims the business is receiving.
However, administrators are now understood to be standing by if the firm becomes insolvent.
Mark Kleinman, the City editor of Sky News, said: “Sky News has learnt that the company has lined up Grant Thornton, the professional services firm, to act as administrator if its board decides in the coming weeks that it is unable to avoid becoming insolvent.
“Executives from Wonga are understood to have been in detailed talks with the Financial Conduct Authority, the City regulator, in the last few weeks to discuss the company’s options.
“Their priority was said to be an outcome reflecting the needs of both customers and creditors, with a pre-pack administration process similar to that used recently by House of Fraser a possibility.”
Launched in 2007, Wonga quickly became a leader in the UK payday loan market in the aftermath of the 2008 financial crisis and at one time was investigating the possibility of a $1 billion flotation on the New York Stock Exchange.
But it became caught up in angry protests from consumers who complained about its high rates of interest. MPs accused the firm of being loan sharks and there were street protests about its tactics and business practices.
Along with the rest of the payday loan industry, it came under intense scrutiny from regulators. After a lengthy investigation, the Financial Conduct Authority (FCA) produced a new set of rules in 2014 to regulate the marketplace.
The new rules included a cap on overall fees so a customer would never pay more than twice what they had borrowed, roll-overs were limited and default fees were capped at £15.
Many payday loan firms were forced out of the industry as the new rules came into force. Wonga changed its management structure after the FCA found its debt collection practices were unfair and ordered it to compensate £2.6 million in compensation to 45,000 customers.
It was also required to write off debts of £220million for 330,00 clients after new affordability checks were put in place.
Though it stayed in business, it has been losing money for several years. In 2014 it lost £37 million and in 2015 its losses were over £80 million. It announced a £65 million shortfall in 2016 and the figures for 2017 are due to be released shortly.
City regulators are believed to be in talks with the firm which is said to be ‘considering all options’ for its future as the legacy complaints from before the 2014 rule change continue to soar.
A spokesman said: “Wonga recently raised £10m from existing shareholders to address the significant increase in legacy loan complaints seen across the UK short-term credit industry.
“Since then, the number of complaints related to UK loans taken out before the current management team joined in 2014 has accelerated further, driven by claims management company activity.
Read our latest story on more payday lenders going out of business here:
“Against this claims backdrop, the Wonga board continues to assess all options regarding the future of the group and all of its entities”