Payday loans - present day

Compensation for mis-sold loans

The City regulator has ordered payday lenders to bring forward compensation for customers who were mis-sold loans, even if it threatens the company with bankruptcy.

It follows the recent collapse of Wonga , the payday lender that became notorious for its extortionate interest rates and was a symbol of Britain's household debt crisis. Wonga was laid low by new rules cutting the amount of interest it could charge, and was finally pushed into administration by a welter of compensation claims for past mis-selling.

This new crackdown is likely to place further pressure on the remaining players in the payday lending market, led by QuickQuid, Sunny and Peachy.

Payday lenders are facing a fresh wave of compensation demands from claims management companies, which have been raking through old loans taken out by consumers.

The FCA's letter makes clear that lenders must treat the complaints seriously and warn the regulator if the subsequent redress bill is likely to send them into bankruptcy.

Payday loans have long been condemned by campaigners as "legal loan sharking" that target vulnerable customers with small loans, which can quickly spiral out of control. At one point Wonga's customers faced interest rates as high as 5,853%, before they were capped by ministers in 2015 at about 1,500%.

Automation plan could mean Wonga compensation claimants may lose out

Administrators winding up payday lender are devising a computer-based tool to decide whether claims are valid

Administrators for Wonga, the controversial payday lender, which went bust this year, are planning to automate the process of judging thousands of outstanding compensation claims, leading campaigners to voice concerns that some customers could lose out.

Accounting firm Grant Thornton is in the process of winding up Wonga, under the weight of costly claims for compensation over mis-sold loans.

The administrators are planning to create an "adjudication tool" which will automatically decide which claims are valid in order to save on the costs of manual processing, according to documents seen by the Guardian.

David Clarke, head of policy at Positive Money, a financial campaign group, warned that a computer-based system could put customers at a disadvantage.

It's seems ironic that after having been mis-sold loans by automated software Wonga customers may now be forced to appeal to a similar automated system. Just as Wonga's algorithms failed to account for individual circumstances when making loans in the first place, there are risks that this technology will again fail to take all the relevant factors into account when processing claims, leaving many customers out of pocket.

Wonga had repeated run-ins with regulators because it levied interest rates that reached as high as 5,853% per annum offered to customers often unable to afford them. It wrote off loans worth £220m in 2014 after regulators introduced new affordability checks.

The demise of Wonga shows that the business model of many payday loan companies is based on its unfair treatment of customers, many of who are in vulnerable situations.

When Wonga collapsed it faced more than 24,000 complaints from customers, while another 9,500 are with the Financial Ombudsman Service. Claims have also continued to stream in at a rate of 200 to 500 claims per day after the appointment of administrators on 30 August, according to the letter to creditors, sent on 24 October.

Backlog of financial ombudsman cases grows to 30,000

A whistle-blower has told MPs that the number of claims not yet allocated case officer has risen threefold since 2016

Delays in getting a case heard by the Financial Ombudsman Service (FOS) have grown threefold since the service was reorganised in 2016, and 30,000 cases are still waiting to be allocated to an investigator, a whistle-blower has told the Treasury select committee.

MPs have stated that there was a backlog of 8,000 investigated claims yet to be adjudicated upon. The committee has been investigating the FOS, which is the official body to which consumers can take a dispute with their bank, insurer or other finance firm.

Consumers have frequently complained to their MP's and the media that the adjudication service takes far too long, and feels as though it is stacked in favour of the big City firms, whose staff often employ delaying and other tactics.

This inquiry was in part sparked by a Channel 4 Despatches programme in March 2018 that claimed the organisation was failing consumers, particularly those who had complex cases. The service is free to consumers, but financial firms have to pay about £500 per claim adjudicated.

Advertising pressure - Provident

In the run up to Christmas a mail-shot produced for Provident, featured photographs of a small girl smiling and wearing a Christmas cracker hat. The direct marketing literature stated that it would not be Christmas without "the look on her face".

Other images included two girls laughing as they hung tinsel around their grandfather. The leaflet offered loans of £100-£1,000 at a "representative" interest rate of 535%.

Many believe this was a cynical tactic to exploit vulnerable people who struggle financially at the best of times, let alone over the festive season. Provident tried to use a deliberately, emotionally loaded message to urge them to take out a loan at an extortionate rate of interest. The Advertising Standards Authority ruled that the advert had been irresponsible, and it had targeted vulnerable consumers. The ASA ruled that it should not be used again.