Controversial payday lender Wonga has filed for administration, after a barrage of compensation claims pushed it over the edge.
Grant Thornton will be appointed as administrator of the stricken lender's UK operations tomorrow. The collapse threatens the jobs of around 250 UK employees in the firm's London Bridge headquarters.
The firm's operations in South Africa, Poland and Spain, unaffected by the rise in UK complaints volumes, will continue to function.
Management said Wonga was pushed over the edge by a stream of compensation claims for past irresponsible lending. The firm raised £10m from existing investors at the start of the month to try to plug the gap, but later said the fundraising had triggered a further acceleration in the costly complaints.
The compensation claims, often from claims management companies, cost £550 each for Wonga if they reach the Financial Ombudsman Service (FOS), whether the claim is upheld or not. Industry insiders believe claims management companies are deliberately targeting payday lenders as the end of lucrative payment protection insurance (PPI) compensation draws nearer.
The number of payday lender complaints to the FOS surged by 251 per cent in the first quarter of this financial year, to top 11,000. One Wonga operating company, WDFC UK, received 2347 complaints in the second half of last year, at an automatic cost of more than £1.2m.
The collapse represents a dramatic fall for a firm which was once the flagbearer – for good or ill – of the payday lending industry, with management at one point considering a listing in New York at a valuation of more than £1bn.
However, the firm has struggled with multiple consecutive annual losses since the Financial Conduct Authority capped the fees and interest controversial short-term lenders could charge in 2014. Tara Kneafsey was appointed as chief executive in September 2014 to try to restore the firm's battered reputation, but Wonga made a pre-tax loss of £66.5m in 2016, according to its latest annual accounts.
Labour MP Stella Creasy said: "Wonga's customers need to be first in queue for protection for the administrators – what Wonga must now do is say it will honour all the compensation it owes to customers it exploited, and assure existing debtors that loans won't be sold off to vulture companies."
Creasy, who had previously been harassed online by a Wonga employee after branding payday lenders as "legal loan sharks", said she would target Provident Financial Group's Vanquis and guarantor loans firm Amigo Loans.
Analysts believe the collapse will have little material impact on major competitors, although the firm's technology platform and international operations could prove to be attractive assets.
The Financial Conduct Authority said it will "continue to supervise Wonga once it is in administration and is in close contact with the proposed administrators with regard to the fair treatment of customers."
"Customers should continue to make any outstanding payments in the normal way," the FCA added. "All existing agreements remain in place and will not be affected by the proposed administration."
In a statement Wonga Group said: “A decision has been taken to place Wonga Group Limited, WDFC UK Limited, Wonga Worldwide Limited and WDFC Services Limited into administration.
“The boards of these entities have assessed all options regarding the future of the group and have concluded that it is appropriate to place the businesses into administration. Chris Laverty, Daniel Smith and Andrew Charters of Grant Thornton UK LLP are in the process of being appointed as joint administrators."
Existing customers can continue to use Wonga services to manage existing borrowing, the firm said.