The Treasury Select Committee of the House of Commons has expressed concern about the lack of protection afforded to customers of failed payday lenders and has suggested that the Government should intervene.
The largest lender in the UK market entered administration in August 2018, and at the time there were around 10,500 borrowers who had outstanding complaints against the firm. Financial Ombudsman Service (FOS) chief Caroline Wayman was quizzed on this matter when she appeared before the Select Committee in January 2019, when she admitted that her organisation had no powers to assist consumers with a complaint against an insolvent firm.
This promoted the Select Committee Chair Nicky Morgan MP to write to the administrators of the failed lender, Grant Thornton, asking what they proposed to do about the issue. Ms Morgan 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 [name of lender], the FCA and the FOS. They’ve been allowed to fall thought the cracks with nobody taking responsibility for their mistreatment.
“I have written to Grant Thornton, [name of lender]’s administrators, to understand how they intend to progress outstanding complaints against [name of lender]. If [name of lender] continues to damage people’s finances from beyond the grave, it may be time for the Government to intervene.”
Customers of consumer credit firms have no recourse to the Financial Services Compensation Scheme should a lender or credit broker go bust. Instead, the best that anyone with a complaint against the firm can do is to contact the firm’s administrators. If the administrators decide that a complaint is justified, the customer will then join the long queue comprising all of the firm’s unsecured creditors. In these circumstances, many customers can expect to receive little or no redress – when firms enter administration they typically have many parties to which they owe money, and any customers on this list are unlikely to be the top priority.
A spokesperson for Grant Thornton said:
“The administrators are continuing to conduct an orderly wind-down of the business in accordance with their statutory obligations, supporting customers where possible during this period, and are developing a methodology for adjudicating claims in a fair and reasonable way in the circumstances of the administration.
“Our aim is to treat claims fairly and efficiently, and to maximise the assets we receive in order to best compensate creditors, including claimants.
“We monitor those customers who may be vulnerable – including financial difficulty, financial hardship and health and wellbeing – and are working to ensure appropriate support for these people.”
February 27 2019 saw another major business failure in the short-term lending sector, so another set of customers may also be left waiting in vain for the compensation they deserve. The latest company to go into administration was the parent company of two UK-based payday lenders. Only around 50,000 of the 700,000 or so loan accounts have been sold on, leaving around 650,000 current and historic accounts in the hands of their administrators, KPMG.
The FOS has already issued a statement saying it will need to cease investigating ongoing complaints concerning the two lenders, and that it will be unable to process any new complaints.
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