The finances of 10,500 borrowers are being “damaged from beyond the grave” by collapsed payday lender Wonga, according to a committee of MPs.
Wonga fell into administration in August last year, with these customers awaiting ombudsman rulings on whether they were mis-sold loans.
Many have given up hope of redress, and the Treasury Committee said their cases had been “cast aside”.
Wonga blamed a surge in compensation claims, in part, for its collapse.
These 10,500 Wonga borrowers had lodged complaints about previous payday loans being mis-sold due, in many cases, to their vulnerability and inability to repay.
They included Ashley, from Bristol, who used Wonga and other payday lenders to fund a gambling addiction – and to pay bills after his income had been frittered away – when he was younger.
Ashley, who is now debt-free, started borrowing about £100 a month, before the debt grew to £400 to £800 each month
The Financial Ombudsman upheld his complaint and deemed more than 40 of the loans to be irresponsible, but the ruling came at the time of Wonga’s collapse.
“I received a standard email from the administrators, saying the likelihood would be not receiving the full amount [of compensation]. I’ve actually given up on it,” he said.
“It is a moral thing that they should pay.”
Compensation for mis-sold loans should cover refunds, including interest and charges. However, when Wonga collapsed, the Financial Ombudsman stopped investigating these cases, owing to the distant prospect of recovering any compensation.
Unlike savings, which are covered by the Financial Services Compensation Scheme (FSCS) when a provider goes bust, there is no such safety net if short-term credit firms fail while owing money such as compensation.
Those with genuine claims, such as Ashley, join the queue of creditors who may receive a fraction of the value of any company assets that can be sold by the administrators.
Nicky Morgan, who chairs the Treasury Committee, said: “It cannot be right that over 10,000 people who may have been mis-sold loans are just cast aside, especially as many will be vulnerable consumers.
“These people have been left to fend for themselves by Wonga, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service. They have been allowed to fall through the cracks with nobody taking responsibility for their mistreatment.
“If Wonga continues to damage people’s finances from beyond the grave, it may be time for the government to intervene.”
Andrew Bailey, head of the regulator – the FCA – said in a letter to Ms Morgan that, unlike savings providers, these short-term lenders did not hold clients’ money or assets so it would not be “proportionate” or affordable for the FSCS safety net to cover the collapse of such lenders as well.
Former borrower Ashley disagrees, arguing that there should be some kind of stronger back-up in place.
Wonga’s demise in the UK followed a surge in compensation claims from claims management companies acting on behalf of people who felt they should never have been given these loans.
The Treasury Committee is now asking Wonga’s administrators for more detail on how outstanding complaints against the payday lender could be progressed. An answer has been requested by early March.