Hundreds of thousands of people were mis-sold loans by the payday lender Wonga, but will only receive a small fraction of the compensation they are entitled to.
Since its collapse in August 2018, administrators have revealed that almost 400,000 eligible claims have already been made.
Former customers of Wonga have until the end of Monday to make any claims, with the administrators aiming to have made all compensation payments by the end of January 2020.
Before its demise, Wonga was at one point the largest payday lender in the UK. The company often attracted criticism over the years for its targeting of vulnerable people with their high-cost short-term loans.
Despite the criticism, the lender was extremely successful until new regulations curbed its business.
Wonga eventually collapsed in 2018 following several compensation claims. Several management companies took on the cases of Wonga customers who felt they shouldn’t have been offered a loan from the company.
The sheer number of mis-sold loans became clearer over time, as an automated claims service was set up to deal with the volume of claims coming in.
The automated process verifies claims by checking them against standards set by the Financial Ombudsman. Grant Thornton, the lending firm’s administrators, said that 560,982 claims were made by the end of August, with 389,621 claims successfully claiming compensation.
The average compensation claim comes in at £1181, with the total compensation bill amounting to around £460m.
These numbers are expected to rise by the end of Monday when the online portal for claims is set to be closed. Making a claim is relatively simple, with the process only requiring the claimants name, address, and the date they were given a loan.
However, Grant Thornton have warned that compensation will not be paid out fully, as there are a range of creditors who also entitled to a receive a slice of Wonga’s assets.
Sara Williams, a debt adviser at Debt Camel Blog, criticised the regulators for allowing Wonga to profit from vulnerable people for such a long time:
“The regulator’s rules say a payday loan is unaffordable if you could only repay it by getting behind with other debts and bills or by borrowing more.
“If you are due a refund, you won’t get paid the full amount. I will be surprised if you get more than 10% of it. That is a disgrace and the UK regulators should be ashamed that they allowed so many payday lenders to profit from people’s desperation for so long.
“But it is so easy to make a claim to Wonga that this is still worth doing.”
Back in February, the Treasury Committee of MPs said that Wonga had caused damage to the finances of its ex-customers from ‘beyond the grave’.
The committee was referring to just 10,5000 people at the time, but experts predict that by the end of Monday the number of people affected could be well over 400,000.