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Wonga – Government legislation required to protect consumers

Now that the payday lender Wonga has confirmed that it has filed for administration and appointed Insolvency Practitioners from Grant Thornton as administrators, the main unresolved issue is the ongoing fair treatment of its customers. The administrators are reported to have confirmed their intention to achieve “an orderly wind down”; that will be welcomed by regulators. They are also reported as stating, “customers with compensation claims over mis-selling should continue to approach the company”, again such an approach will be welcomed by regulators. However, the suggestion that “they would be dealt with as unsecured creditors” is likely to result in an unfair outcome for the customers as they look likely to join a queue behind secured creditors.

Do precedents exist in respect of a fairer outcome in similar circumstances?

The FCA website states, “The FCA will continue to supervise Wonga and is in close contact with the administrators with regard to the fair treatment of customers.” Let no one underestimate this challenge. The FCA has to steer a difficult route between fair outcomes and insolvency law. However, the FCA has previous experience in a not to dissimilar situation.

Cash Genie agreement with FCA to pay redress

Just over two years ago Ariste Holding Limited, trading as Cash Genie, entered into an agreement with the FCA to provide over £20 million redress to more than 92,000 customers for unfair practices. At the time, the FCA announced Cash Genie had voluntarily entered into a solvent liquidation and that the firm handed over to liquidator RSM Restructuring Advisory LLP on 5 January 2016. Most importantly from a customer outcome point of view the FCA also confirmed, “This will not affect the payment of redress to customers.” The result in practice was that verified claims were settled from the back book income while it lasted.

Legislators need to ensure fair outcomes

When presenting the 2018 – 2019 business plan the FCA confirmed that “Phoenixing is something we are looking at” and “You will be hearing more from us on this, because it is a live issue.” The potential consumer detriment in any ‘phoenixing situation is huge. Sadly, regulators may lack, on their own, the necessary powers to override insolvency law. If regulators can’t find the right path to fair consumer outcomes there is only one solution: Government needs to legislate to protect consumers with valid claims against a firm in administration.

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