Wonga appeared to be on the verge of folding this morning, as it made the decision to stop taking new loan applications.
The payday lender told customers that it “continues to assess its options” in the wake of a huge number of compensation claims that led to shareholders providing an emergency £10m earlier this month.
Business services group Grant Thornton is ready to step in as administrator if Wonga does collapse, according to Sky News.
“While it continues to assess its options Wonga has decided to stop taking loan applications,” Wonga’s statement read.
“If you are an existing customer you can continue to use our services to manage your loan.”
While existing customers can still use its services to manage their loans, Wonga is looking at options including insolvency as it struggles to pay out the compensation claims.
It has blamed claims management companies for a surge in complaints about UK loans taken out before 2014.
With the deadline for claims on mis-sold payment protection insurance (PPI) only a year away, City A.M. reported earlier this week that claims management companies see expensive loans as the so-called next PPI.
Wonga saw success following the financial crisis by offering short-term loans with eye-watering interest rates, but regulators have since tightened regulation of the industry.
The spike in compensation claims relate to pre-2014 loans that regulators have ordered Wonga to pay back, citing inadequate affordability checks.
The Financial Conduct Authority told it to pay £2.6m to compensate 45,000 customers that year, and capped charges at double the original loan, while Wonga was charging nearly 6,000 per cent annual percentage rates (APRs) in some cases.
Wonga has since tried to move into more flexible loans as the loans sector seeks new ways of lending money. One rival, Amigo, today reported a 50 per cent jump in revenue following its IPO last month.