Payday lending isn't over yet – and now its victims are being shortchanged yet again

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Another day, another payday lender reaches out from beyond the grave to bite its borrowers.

The administrators of WageDay Advance, which went under in February, have started contacting thousands of former customers owed compensation through being mis-sold loans by the company to urge them to join a growing list of creditors.

Existing borrowers will be OK if their outstanding debt is less than the redress that they are due. Their balances will simply be reduced so they’ll have less to pay back. But those who have settled their accounts aren’t so lucky.

I’m told by the administrators that there will be money for them, and so it’s very much in their interests to respond to the texts and emails that have been going out. But they will not be paid what they are owed as a result of their being ripped off. They have the status of unsecured creditors. That means they’re at the back of the queue when it comes to divvying up what’s left of the company’s cash.

Compared with Wonga, WageDay was more of a piranha fish than a shark – but the problems it has created aren’t all that different.

At the payday loan industry’s height, they both lent money out indiscriminately and then applied the thumbscrews to people who couldn’t afford to repay. In many cases, those people ended up paying off one short term loan with another and then another. As a result, their debts spiralled and they were left drowning.

I’ve previously described the industry’s practices as amounting to legalised loan sharking. No, borrowers didn’t get roughed up, but consider the impact on the health of people in this invidious position. Imagine how it must feel to watch the red bills, threatening letters and final demands piling up on the doormat. Then ask yourself how much difference there is between the way some payday lenders operated and the tactics employed by Nobby Knuckleduster, a subsidiary of Backstreet Loans Unincorporated.

The mounting scandal led the Financial Conduct Authority (FCA) to impose a crackdown, putting a cap on interest rates and charges. It also ordered lenders to compensate mistreated borrowers as complaints flooded in. As a result, Wonga collapsed last August. WageDay went under in February when its owner Curo Transatlantic, which also operated Juo Loans, called in the administrators. They may yet be joined by others.

The road to hell is paved with good intentions and the FCA’s intentions with its compensation demand were good. The trouble is, while the compensation scheme is there to ensure savers are covered if their providers go pop, it doesn’t cover borrowers. It’s a gap in the system that has led to many aggrieved WageDay and Wonga clients experiencing a false dawn. They have every reason to feel very bitter; they’ve fallen through the cracks.

As for payday lending more generally, sadly it will survive this hit. The industry is now a lot smaller than it once was, and that’s a good thing. The arrival of Wonga and its copycats sparked a boom in easy short-term credit. Thousands of people who wouldn’t have dreamed of taking out payday loans before its arrival got sucked in and kicked in a painful place. Short of cash when you’re after a night on the town? We can help! It’s easy money! You can worry about the repayments later (and you will worry, once we’ve got our claws into you).

It ought to be a better regulated industry too. But has it been chastened? I’m not sure.

I recently started filling out a form for a payday loan as part of the research for a piece. My interest was in comparing chargers between this and other forms of credit, but to get a quote I’d have been required to submit my bank details. At that point, I gave up.

Five minutes later I got a call on my mobile phone from a friendly, but pushy, salesman extolling the virtues of the company I’d chosen and asking what they could do to help me join HappyClappyPaydayloans.com. Regulators should take note.