Some already established lenders including Wonga, The Money Shop and QuickQuid have fallen into administration in the last few years, following thousands of complaints and reimbursements to former customers.
When the City regulator opened the gates to loan claims, thousands of previous customers applied to receive a full refund for high cost loans, claiming that they could not afford them and were put under greater financial pressure due to lack of affordability or employment.
To give an idea of numbers, Wonga paid a total of £500 million worth of compensation to its ex-customers, although the overall bill owed was more than £4 billion. With The Money Shop and QuickQuid paying back a modest £100 million to its customers in comparison.
The latest companies to face increasing claims are guarantor lender, Amigo Loans, and sub-prime lender, Provident. Bournemouth-based Amigo Loans has already paid back more than £50 million to its customers who have struggled with repayments, through a combination of self-claim forms and aggressive marketing from claims management companies, who often take a percentage of any successful claim. Some claims firms have charged up to 36% in commission to administrate the reclaim process on behalf of customers, something that Amigo CEO Gary Jennison has called ‘outrageous.’
With thousands of claims still in the pipeline and a risk of insolvency, Amigo has structured a deal that will see all customers receiving a payout, but only around 5% to 10% of their overall amount owed. Wonga had previously committed to a 4% of the total reclaim amount to their customers and fell into administration thereafter.
Whilst this proposed structure will keep Amigo profitable and trading for future years, this was recently challenged and rejected by the Financial Conduct Authority last week - asking Amigo to come up with a stronger repayment package to its former customers.
Provident is one of the UK’s oldest lenders, specialising in doorstep loans, going from home to home, well before the Internet was invented. The firm is also under huge pressure to resolve its claims - and is looking to see the outcome of Amigo’s ongoing court case before acting accordingly.
David Beard, founder of LendingExpert, commented: “A lot of customers were granted high-cost loans that they simply could not afford and they were given top-up loans and rollovers, which led to an inevitable spiral of ongoing debt”.
“With the Financial Ombudsman upholding around 88% of claims for Amigo so far, there certainly needs to be more transparency in terms of what lenders can and cannot do.”
“On the one hand, they want to fund loans, but if the customer cannot repay, they are obligated to provide a full refund and compensation on top. This is not a sustainable business model for any lender and there will be fewer and fewer in the market until we are left with just banks. So it will be interesting to see how the proceedings conclude with Amigo and more transparency in the industry would certainly be warranted.”
