Investors in the UK’s biggest payday lender, Wonga, have provided £10m of emergency funds as the company seeks to deal with a surge in claims from former customers seeking compensation.
The claims relate to loans taken out prior to 2014, the company said, when controversy over its lending practices led to the introduction of a cap on the cost of borrowing.
Following the cap, in which the Financial Conduct Authority (FCA) introduced a cap of 0.8 percent of the amount borrowed per day on the cost of payday loans, Wonga was forced to change its business model, providing a greater range of lending products.
Wonga lost around £65m in 2016, but targeted a return to profit in 2017. It is not clear whether it met that objective as its annual report for the year has yet to be published.
Confirming the cash injection, a Wonga spokesperson said the company “continues to make progress against the transformation plan set out for the business”.
“In recent months, however, the short term credit industry has seen a marked increase in claims related to legacy loans, driven principally by claims management company activity.
“In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the business in 2014.
“As a result, the team has raised £10m of new capital from existing shareholders, who remain fully supportive of management’s plans for the business.”