A group of lenders which includes The Money Shop, one of the UK’s largest short-term loan providers, is seeking to set aside an £18m payout pot for complaints, as it prepares to wind itself up.
Instant Cash Loans (ICL), which owns The Money Shop, Payday Express and Payday UK, has not issued any loans since August 2018, but has still seen a surge in historic complaints. All three brands are to be wound up.
Companies House documents show ICL made an after-tax loss of £89.1m loss in 2018, nearly double the £48.3m loss it recorded in 2017.
It is now seeking approval from its creditors for the compensation scheme, which will be used to pay out to consumers if they have a valid complaint.
ICL is owned by US-based hedge fund HPS Partners, which has decided to close what was once one of the UK’s largest short-term lenders with more than 500 branches across the country.
In June 2018, the company operated 233 stores across the UK and Northern Ireland.
HPS Partners declined to comment.
Sheraz Afzal, chief risk officer for ICL, said: “Our proposed scheme will deliver the best possible outcome for consumers, and our other creditors. Our goal is to close down ICL in the best way possible while acknowledging that there is no good way to do this. With that in mind, I urge our customers and creditors to back the proposal. Unfortunately, should we fail to gain permission to pursue this solution, the company will proceed to liquidation, minimising compensation.”
It is likely to take a period of weeks for the scheme of arrangement, which requires creditor approval, to be ratified.
The sums creditors can expect for successful claims could vary depending on the volume of claimants.
Like many of its peers, including Wonga and Curo Transatlantic, The Money Shop has received an influx of complaints following the activity of claims management companies.
Currently, each case that the Financial Ombudsman Service (FOS) processes, including invalid claims, costs the lender approximately £500.
Complaints made to the FOS over high-cost, short-term lenders soared by 130 percent in 2018-19, according to its annual report.
The Consumer Finance Association (CFA), which represents high-cost, short-term lenders, including The Money Shop, said it “would not be appropriate” to discuss any individual companies.
However, it added: “Our members are also still working hard to address historic complaints, which largely relate to loans that predate FCA regulation. Some firms have been in discussions with the regulator to develop specific schemes to ensure the appropriate compensation is made available for those customers with a valid claim. It is right to address the mistakes of the past.
“However, there are worries about how this is impacting the sector and the problems it throws up. We know that claims management companies are flooding firms with low quality complaints. There have been problems with the way the Financial Ombudsman has approached this issue, and questions raised about whether this could have been dealt with earlier by the regulator.”