650,000 payday loan customers left in limbo due to company collapse

It has been recently revealed that two payday lenders, Juo Loans and WageDayAdvance (who are both owned by the same parent company) have ended up collapsing.

This follows the well-publicized collapse of the huge short-term credit, high-interest firm Wonga in August 2018, which is currently dealing with over 40,000 unresolved complaints, with no guarantee for the claimants getting compensation for mis-sold claims.

What will happen next?

Customers who were with Juo Loans will find that they have been transferred to Shelby Finance, which is owned by Morses Club. This is estimated to be around 50,000 Curo Transatlantic Limited(CTL) customers in total. Customers have been informed that they will be transferred and have been advised to continue with their loan repayments as before the collapse.

However for the customers of WageDayAdvance, the future is not so certain. This is estimated to be approximately 650,000 customers who do not know what will be happening next, and this includes customers who no longer have a loan with CTL.

At this moment in time, the administrators dealing with the payday lenders going bust, KPMG, have told customers who complete their loan repayments via an agent should continue doing so. However, borrowers who make their loan repayments by direct debit will no longer be able to do so whilst administrators decide on what the next step will be. Whilst this is going ahead, any interest will be frozen. The exact amount of time that this will go on for, has not been stated.

Right now, KPMG is working to realise the remaining assets of the company, and will then distribute these funds to creditors. This could end up taking a considerable amount of time.

Why did they collapse?

Both Juo Loans and WageDayAdvance have been accused of lending irresponsibly. It has been estimated that this has amounted to around £18 million overall. Customer complaints have revolved around the companies targeting some of the most vulnerable in society, and charging sky-high interest rates, making it very difficult for customers to pay the loan back, and potentially getting into even further debt than previously.

The number of compensation claims against the lenders eventually became too much to handle, leading to their eventual collapse. As it stands, there has been filed nearly 2,000 compensation claims against WageDayAdvance alone to the Financial Ombudsman, with the potentially for many more to be directly filed with the firm in the next coming months.

The rise of alternatives

With the continued demise of payday lenders, more and more lenders have been innovating and shifting towards a more flexible and long term product. The One Stop Money Shop offers loans repaid over 12 months, moving away from the traditional 14 to 30 day product which has put financial strain on millions of customers over the years.

Elsewhere, many companies in the sector have opted to include the option of a guarantor to assist those with bad credit and give them the chance to make regular repayments and build up their credit score. This is something that can also be achieved with a credit builder credit card too, although only small amounts are available.

The introduction of flexible overdrafts that customers can use as they wish is also gaining momentum, and this is currently offered by Stepstone Credit, Drafty and Sunny.