Complaints could push BrightHouse to brink

As with many of its counterparts in the high-cost, short-term market, such as Wonga and QuickQuid, BrightHouse has been the subject of complaints about mis-selling.

In a statement to Credit Strategy, a BrightHouse spokesman said it is “exploring a range of options to cap its exposure to claims for historic mis-selling”.

“To be successful in this, BrightHouse needs the support of its stakeholders and is currently in active discussions with them,” he added. “Naturally, the protection of value in the business and safeguarding of customers’ interests are core to our planning.”

Part of that includes a move away from rent-to-own and a shift towards cash loans, a report issued to investors showed. BrightHouse trialled cash loan products in 2018.

It also revealed that it had increased its complaints provisions by £4.9m to £17.5m, reflecting “a higher volume of claims being received than previously forecast”. Complaints are costing the company around £1m per month, the report showed, although BrightHouse believes that the eventual bill could be much higher, should its disputed cases with the Financial Ombudsman Service (FOS) be upheld.

It said: “We have disclosed a contingent liability with respect to the uncertainty around the future volume of claims and the potential outcome of the test cases under discussion with the FOS. The level of redress claims from customers is putting increasing pressure on the available liquidity in the group.”

The company has undertaken significant structural changes in recent years in order to improve its resilience, its offering to customers and comply with regulations after a clampdown by the Financial Conduct Authority (FCA).

BrightHouse currently holds around 240 stores across the UK, having closed 30 in February 2019. It also undertook a £220m restructuring deal in 2017, which halved its external debt.

The business is on its third chief executive in little over a year. Hamish Paton left to join Amigo Loans in 2019, with his replacement Anth Mooney appointed in July. However, after six months, it was announced he would join Vida Homeloans owner Belmont Green as chief executive, leading BrightHouse to appointment of Alan Gullan as interim chief executive.

Away from complaints, the entire rent-to-own sector has been adjusting to a cap imposed by the Financial Conduct Authority (FCA). Under the cap, which came into force in April 2019, credit charges cannot be more than the cost of the product. In addition, rent-to-own firms would need to benchmark the cost of products against the prices charged by three other retailers.

The rules would also prevent firms increasing their prices for insurance premiums (for example, theft and accidental damage cover), extended warranties or arrears charges in order to recoup lost revenue from the price cap.

There have been reports that BrightHouse has put administrators at Grant Thornton on standby, ahead of a potential collapse. When asked by Credit Strategy, Grant Thornton declined to comment.

BrightHouse managing director for financial services, Dave Poole, is speaking at the Credit Summit on March 19, 2020.