In February, Nicky Morgan, who chairs the Treasury Committee, said:
It cannot be right that over 10,000 people who may have been mis-sold loans are just cast aside, especially as many will be vulnerable consumers.
The Wonga administrators replied, saying:
The total number of redress claims is currently more than four times the number you referred to in your press statement on 26 February and we can expect this to increase, when the Administrators publicly request claims from borrowers who believe they may have been sold an unaffordable loan.
So there must be more than 40,000 people with complaints against Wonga, asking for payday loan refunds. How large is this figure likely to get?
And is this really the FCA and the Financial Ombudsman (FOS)’s fault, as Nicky Morgan suggested when she wrote:
These people have been left to fend for themselves by Wonga, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service. They have been allowed to fall through the cracks with nobody taking responsibility for their mistreatment.
How many people were mis-sold loans by Wonga?
We know from the Administrators’ Proposals sent to creditors in late October 2018 (see my article How the Wonga administrators will handle complaints & refunds) that:
- at the start of administration there were 24,000 claims awaiting a decision by Wonga;
- there were 9,500 claims with the Finacial Ombudsman (FOS) awaiting a decision – these have since been returned to the administrators;
- since the administration started between 200 and 500 extra complaints a day were received by the administrators.
I expect the 200-500 a day rate will have slowed since October. But this is before the Administrators put live their online portal inviting people to submit complaints.
I will be surprised if the eventual number claiming against Wonga isn’t more than 100,000.
And there will be many more people with small claims who may not bother, as they are unlikely to get much back if they only had a few loans.
Why FOS has sent complaints back to the administrators
In the Insolvency Act there is a moratorium against legal proceedings being started or continued once a firm goes into administration.
The courts have interpreted “legal proceedings” to include quasi-legal proceedings such as arbitration, see Straume Ltd v Bradlor Dev. Ltd  As FOS decisions are legally binding, they seem very likely to come under the category of quasi-legal proceedings.
FOS therefore had no choice about what to do. It couldn’t carry on looking at the cases, they had to go back to the Administrators.
Why is there no FSCS protection?
I have looked at this issue in detail in Why the FSCS doesn’t cover Wonga and other payday lenders. When the FCA took over regulating consumer credit, it proposed to extend the FSCS to cover consumer lending, which would include payday loans. But in 2016 it said:
Having now considered the issue in more detail, we still believe that most consumer credit activities should remain outside FSCS protection because our other regulatory requirements are sufficient.
I think the FCA should be rethinking its decision.
the FCA’s other regulatory requirements have signally failed to protect the Wonga customers – both those who were victims of historic mis-selling and those who were sold unaffordable loans after the FCA took over as Wonga’s regulator.
As Nicky Morgan said:
This issue raises questions about whether the coverage of the Financial Services Compensation Scheme should be widened to provide protection for customers of high-cost short-term lenders and those of firms that later go bust.
It’s not just Wonga victims
Wonga makes the headlines as everyone has heard of them. But Wageday Advance, a mid-sized payday lender went into administration two weeks ago. Not as large as Wonga, but they had given loans to 650,000 people over the last ten years.
Many of Wageday Advance customers may have excellent claims for mis-selling, as this article which looks at why so many people were complaining to them shows.
Why isn’t the FCA clear about lack of FSCS protection?
It isn’t clear to the man in the street what is and what isn’t covered by the FSCS. The FCA register is not helpful on the subject, for Wonga it says:
It cannot be determined if FSCS cover would apply to this firm. Please contact the firm directly to understand whether their products/services would be covered by FSCS.
The FCA knows perfectly well that the FSCS doesn’t cover Wonga. So why doesn’t the register say that?