Wonga is to offer no new payday loans as the company suffers reduced customer number and profits following FCA rulings. Is the payday loans market on the verge of collapse following numerous consumer complaints.

A big player in the payday loans/ instant credit market, Wonga, is to halt all new loans. The move signifies money troubles for the well known brand. The company’s website offered a statement saying they would “assess their options” moving forward. But, for the foreseeable future, would not be offering new loans.

debt collection practices

Trading in credit – payday loans

A major force behind the financial difficulty is compensation payouts. Despite a £10 million injection in August, the company continues to struggle. In 2014 the Financial Conduct Authority (FCA) ordered their debt collection practices were unfair. The order resulted in £2.6 million worth of payouts to 45,000 customers.

Where did it go wrong? After being so successful at its peak, Wonga have since dwindled. Leading voices in finance suggest they “were flogging credit and created demand for it”. The temptation of short terms loans attracted borrowers who didn’t need the service. That aside, Wonga also offered credit on many unsecured loans. People could take a loan instantly without adequate checks. This is a dangerous practice which led to the debt collection practices ruling. It also highlighted issues with data protection and fraud.

This however was a market wide problem. Many similar payday loans lenders offered credit without thorough checks. Cash strained and easily accessible, it generated a problem with consumer debt. The following year the FCA ruled that interest rates needed cutting drastically. They dictated no borrower should repay more than twice the amount borrowed. This caused liquidity problems for many companies. With the 2014 ruling, a number of payday loans providers exited the market.

Despite this and a new strategy by Wonga, customer number almost halved during the following years. At present, Wonga is reportedly set to appoint grant Thornton as administrators.

Managing consumer debt

Consumer debt requires careful management. Companies offering credit should take due diligence when offering credit. They should also ensure the borrower seeks credit rather than offering the credit freely. This may be a big contributor in Wonga’s downfall. With a number of customers unable to repay high interest, they undertook debt collection practices. By providing proper checks and repayable interest, the company may not occupy its current position. It is a balancing act, offering appropriate credit to the correct people. It is one however all financial based services should manage properly.

Payday loans are much like credit cards. They aren’t outright a bad idea. They become a bad idea however if taken out under the wrong conditions. Good debt and bad debt depends on the borrower, the repay-ability and the reason for the debt. Taking out credit when a consumer isn’t able to manage it, can become a problem for both parties.

Credit management is a big part of debt collection. Finding repayment plans, speaking to both sides. Finding the best solution earlier through mediation is the ideal scenario for debt collection. If you are a creditor requiring advice on credit control or debt collection, help is available. For expert advice, call 0800 130 3357 or email enquiries@ayom.co.uk.

We have advisers able to talk over controlling credit and debt collection should debtors struggle to repay.