We wrote an article several years ago asking why after discussing the issue with the FCA, Wonga would in 2014 voluntarily pay and write off around £200m in compensation to stay in a market which is worth £30m a year in total. On the face of it, It seemed incredibly stupid. Especially as Wonga hadn't and still hasn't actually broken any operating rules.
What Are They Accused Of?
The claims were that they hadn't been doing affordability checks on loans they gave to customers. The problem was that there were no rules in place at the time that required them to do affordability checks. The FCA brought that in when they started in 2014, Wonga was paying compensation for loans it said it didn't do affordability checks on in 2011 - why?
The decision to refund money for wrongdoings it hadn't done was truly shocking and not just in hindsight, we said so at the time. In fact, it was so bad, we thought it was some kind of tax rebate trick Wonga were pulling.
As late as last month we continued to believe that it was some weird accountancy trick. But when Wonga shareholders put another £10m in we started to question this and it appears that we were wrong - the executive team really were that stupid.
Wonga Bad Management
Wonga's problem was that it had very weak management back in 2014 and they were unwilling to walk away from a bad deal that the FCA informally gave them. In a way, those directors should be prosecuted by their shareholders. It is worth pointing out that the current executive team is different from the previous one and should take no blame for this.
Wonga have paid the FCA millions in fees over the years. Walking away is going to hurt the FCA both financially and in negative publicity. For those that don't know, The FCA requires Wonga to take fees from each loan and give to the FCA in fees. It is also worth pointing out that the FCA dishes out £24m a year in bonuses to it's staff. The Director's and the staff at the FCA aren't so moral when it comes to taking their share of the loot gathered from the poorest in society.
We understand that Wonga could be open to an even bigger launch of compensation claims very soon if things don't go their way at the Finacial Ombudsman Service. It is alledged that they didn't perform affordability checks on their rollovers - not just their first time loans. Wonga are arguing that these claims should be dismissed as they were over 6 year ago, but if that defence isn't allowed. Wonga is finished anyway.
But, we are where we are and Wonga now needs to say it is time to leave the UK for good. It is now just a bottomless pit that shareholders will need to put cash into. The FCA's action has clearly shown that they won't stop until they cripple the industry. We think there are now as little as 3 Direct Lenders in the UK and not one of them has made a profit in the last 5 years. Why they are still hanging about is a mystery to us.
The UK has become very anti-business, especially in finance. Lenders and borrowers have been thrown to the side so that virtue signalling FCA executives and Politician's can boast about their virtue. Regardless of the dangers to the public or sending the industry underground.