People who were mis-sold loans by the payday lender Wonga have been told that they will receive just 4.3% of the compensation they are owed.
Administrators have begun informing around 400,000 claimants by letter, some of whom have reacted in dismay.
Before its collapse, Wonga was vilified for its high-cost, short-term loans, seen as targeting the vulnerable.
Commenting on the debt advice forum Debt Camel, one ex-customer called it an “utter disgrace”.
“Lives have been ruined by these loans. I myself had to borrow from friends and family to make repayments on time. Claim redress £3,455, [I am] getting £148.”
Wonga, which collapsed in 2018, was once the UK’s biggest payday lender but its practices attracted intense scrutiny.
Wonga’s legacy of nearly 400,000 mis-sold loans
Wonga collapses into administration
In 2014, the Financial Conduct Authority (FCA) found it had lent money to many who would never be able to repay, prompting a crack down on the sector.
Administrators have since received 380,000 eligible claims against the business worth £460m in total – an average of £1,200 a claim.
Wonga was once the biggest payday lender in the UK
But while claimants were warned they would get “significantly less” than full compensation, few expected to get so little.
Sara Williams, who runs Debt Camel, said they had been “badly let down”.
“Wonga ignored the regulator’s rules about checking the affordability of loans and they were allowed to get away with this for 10 years.
“Now customers are being let down again because they are not getting the compensation they deserve from the regulator.”
Hundreds of ex-customers have vented their anger on the Debt Camel site. One said: “We have all been exploited, and we all know how much we have been exploited by.
“In my case £6,500, of which I’ll receive less than £300.”
Ms Williams said borrowers were not covered by the Financial Services Compensation Scheme, which is overseen by the FCA,
The scheme covers products such as payment protection insurance (PPI), fully reimbursing anyone who has been mis-sold to, but does not extend to payday loans.
Payments within four weeks
“This isn’t just a problem for the hundreds of thousands of Wonga victims. Borrowers from many payday lenders have been unable to get proper compensation after the lender has had to close,” Ms Williams said.
“The FCA needs to rethink this and provide a safety net for people who were mis-sold unaffordable loans.”
Wonga’s administrators said claims should be paid within the next four weeks, later than the 20 January date initially promised.
They also said loans being refunded would be removed from people’s credit records within the next six weeks – which will be a relief to many.
Some people still owe money to Wonga but it is unclear what will happen to their balances.
Ms Williams said administrators were no longer taking payments and had said before that they were not likely to sell the loans to a debt collector.