Wonga Collapses After £220 Million Compensation Bill for High-Cost Payday Loans

Wonga, once the UK's largest payday lender, became a symbol of predatory lending practices. The company offered short-term loans with annual percentage rates (APR) that reached a staggering 5,853%. A £200 loan could easily become a £600 debt within weeks.

The company specifically targeted vulnerable borrowers — people with poor credit, low incomes, and urgent financial needs. Its marketing was aggressive and even featured puppet characters in TV advertisements that the FCA later forced them to withdraw for trivializing the risks of high-cost credit.

Wonga's lending practices were found to be fundamentally irresponsible:

- **Inadequate affordability checks:** The company lent to people who clearly could not afford to repay, including people on benefits and those already in debt spirals. - **Fake legal threats:** In 2014, the FCA found that Wonga had sent fake legal letters to customers in arrears, pretending to be from law firms that didn't exist, threatening legal action to intimidate them into paying. - **Rollovers and escalating debt:** Borrowers who couldn't repay were encouraged to roll over their loans, with interest compounding rapidly.

The FCA ordered Wonga to pay compensation to over 45,000 customers who had been sent fake legal letters. Combined with wider compensation claims and the FCA's cap on payday lending costs (introduced in 2015), Wonga's business model became unviable. The company entered administration in August 2018, and the compensation program eventually paid out approximately £220 million to affected consumers.