A major doorstep lender has announced that it is under investigation by the Financial Conduct Authority, with the regulator’s major area of concern said to centre around the firm’s affordability checks. It is reported that the regulator’s investigation is unlikely to conclude until early next year.

The firm has also written to 4.3 million customers of its consumer credit division, warning them that unless they accept a significant reduction in their mis-selling compensation payments, the firm could be forced into liquidation. In addition to the complaints issues, the firm has seen revenues from new loans fall since the pandemic hit.

The firm’s proposal is to set aside £50 million for compensation and an additional £15 million to cover the costs of administering the compensation scheme. Claims under this Scheme of Arrangement could cover loans issued as far back as 2007. The firm admits that compensation payouts “may be significantly less than the amount claimed”. The firm’s proposals will need to be approved by the 4.3 million customers and by the courts, and the firm also says that, if the scheme is not approved, administration or liquidation is likely to follow.

This redress scheme is similar to one that has already been proposed by a large guarantor lender. The scheme might meet with opposition from the FCA, who could conclude that any proposal that leads to customers receiving less than the value of their claims runs contrary to its consumer protection objective.

The Financial Ombudsman Service’s figures for the period July to December 2020 show that this firm received 10,390 complaints, higher than for any of the banking giants. Additionally, 75% of the firm’s complaints during the period were upheld. It is understood that this led to £25 million of compensation being paid out during the six-month period, and that this was 10 times higher than for the equivalent period in 2019.

FOS has reacted to the firm’s announcement by saying that it is not currently accepting new complaints against the firm, and that it has suspended investigation of ongoing complaints.