The Financial Ombudsman Service (FOS) has confirmed that it will not be able to progress any further the complaints it has been handling concerning a large payday lender that entered administration in August 2018. There is no protection under the Financial Services Compensation Scheme for any customers of failed consumer credit firms.
The FOS will now forward the outstanding cases from this firm on to the administrators, Grant Thornton. Anyone with a claim against the lender, including anyone with legitimate grounds for a regulatory complaint where compensation might be payable, is now classed as one of the lender’s ‘unsecured creditors’. This includes anyone whose complaint has already been upheld, but who is yet to receive any compensation.
How much compensation affected complainants will receive remains unclear, but the firm’s website says it is “very unlikely” that they will receive the full amount they are entitled to.
Both the FOS and Grant Thornton are writing to affected customers regarding this issue. Customers with new complaints should continue to approach the firm in administration.
The firm’s website also says:
“Any amount you may be owed will need to be considered by the Administrators as they assess how to pay out all those to whom money may be owed from the assets.
“The Administrators are in the process of considering how to identify and notify all of those who may have a complaint and of their ability to submit a claim and will communicate with these individuals in due course.”
It was impossible to save the firm in question, with its financial difficulties largely due to the volume of complaints being upheld against it.
Perhaps fearing a similar outcome at other payday lenders, the Financial Conduct Authority (FCA) issued a Dear CEO letter in October 2018 to the chiefs of the UK’s high cost short-term lenders. This not only asked them to “assess their lending activity to determine whether creditworthiness assessments are compliant”, and to consider whether a customer redress programme was required; but also asked firms to “inform the FCA if they are unable (now or in the future) to meet their financial commitments because of any remediation costs.”
To avoid any future issues with compensation payouts from upheld complaints, payday lenders need to ensure they conduct rigorous credit and affordability checks before deciding to lend, and also that they treat customers fairly when seeking to collect debts.
The payday lending landscape has changed dramatically in recent months and years, with customers becoming increasingly willing to complain. In 2017/18 the FOS received 17,256 payday loan complaints, which in itself represented a significant increase on the year before. Now the first quarter of this financial year has seen some 10,979 new payday loan cases, representing some 64% of last year’s total in just the first three months. Payday loans now account for around 10% of the total FOS workload. The payday loan complaint uphold rate at FOS is 56%, well above the average uphold rate across all products, which stands at 35%.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article