Complaints and instability in the payday loans industry
Payday Loans

UK’s largest payday lender swamped by cost of complaints

The UK’s largest remaining payday lender spent more money dealing with complaints in the first half of the year than it made in profits.

CashEuroNet UK, which lends under the QuickQuid and Pounds to Pocket brands, was the subject of 4,692 complaints to the Financial Ombudsman Service in the six months to June, according to figures published on Wednesday.

The FOS charges nothing for the first 25 complaints a year but, thereafter, companies must pay a fee of £550 per complaint received, meaning CashEuroNet was charged more than £2.5m in administrative costs alone, before any compensation payouts.

CashEuroNet accounts for 85 per cent of overseas revenues at US-listed Enova International. Company filings show that profits at Enova’s non-US businesses more than halved year-on-year in the six months to June 2018 to $2.8m (£2.15m), despite rising revenues.

Some in the industry fear that a rise in consumer complaints that is being driven by professional claims management firms is making their business unsustainable. The UK market leader Wonga collapsed last month, blaming a surge in complaints.

Enova has previously warned that a continuation of the recent trend could have a “material adverse effect on our business, prospects, results of operations, financial conditions and cash flows”.

Nick Drew, CashEuroNet UK managing director, said the business was “committed to good lending practices and to treating customers fairly, while ensuring that consumers have access to trustworthy and affordable credit”.

He added: “Our business is profitable and growing, and we remain excited about the opportunities, especially in light of the diminished competition in the market.”

The demise of Wonga in the UK was celebrated by many campaigners who accused it of exploiting vulnerable borrowers. They have also called for action against other short-term lenders.

However, industry figures and observers have argued payday lenders provide an essential service to people who struggle to access credit.

In a regulatory filing over the summer, Enova complained that the FOS was interpreting the UK financial regulator’s rules and guidance “in a manner that is stricter than, and sometimes in direct conflict with, [the regulator’s] own interpretation”.

The FOS said: “Some payday lenders handle complaints well, and put things right for their customers without our intervention. But some don’t — and it’s those firms where we’re agreeing with the customer more often than not.”

In the first half of the year, the total number of complaints to the FOS rose by 22 per cent because of a sharp rise in the number of payday lender complaints.

The year-on-year increase in complaints about Wonga was 215 per cent, and at Casheuronet it was 287 per cent.

In the latest six-monthly review of complaints it receives about banks and insurers, the ombudsman said there had been a total of 201,600 complaints in the first half of the year, compared to 165,406 last year.

According to the ombudsman, tougher rules for payday lenders have made borrowers more aware of their rights on the affordability of loans. Meanwhile, many professional claims management companies have switched their focus from PPI to unhappy payday customers, now that the Financial Conduct Authority has set an August 2019 deadline for PPI claims.

The FOS said: “If a consumer has a problem with a financial business, they should get in touch — it’s easy and free and you don’t need to use a claims manager.”

Overall, PPI continued to be the most complained about product with just over 105,000 complaints.

Payment Protection Insurance policies were often added to loans, credit cards and mortgages from the late-1990s, with sales peaking in 2004. But they were frequently sold to people for whom they were unnecessary or unsuitable.

The ombudsman said banking and credit complaints had increased by 44 per cent to around 63,000 and within this, consumer credit complaints were up 80 per cent to almost 30,000. The rising number of complaints has been driven by increasing debt problems as well as criminal activity.

Complaints about life insurance and pensions products, which more people have been buying since pension reforms in 2015, increased by 17 per cent to 3,764.

Date published: 11 September 2018

Nicholas Megaw and Lucy Warwick-Ching


Word count: 700

This article has been updated with the fact that the FOS charges nothing for the first 25 complaints a year it receives about a company.

Copyright The Financial Times Limited 2018

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