QuickQuid Owner On The Edge Of Collapse As Payday Lender Complaints Rise | Business
The UK’s largest payday lender is at risk of entering administration, a year after rival Wonga collapsed amid an increase in complaints.
The US owner of CashEuroNet UK, which operates the QuickQuid and On Stride brands, is considering his options after confirming his intention to withdraw from its UK operations.
This came after Chicago-based Enova failed to strike a deal with UK regulators to reduce the number of clients it would have to compensate for the historic loans.
Payday lenders are under pressure from an increase in compensation claims filed by customers who believe they are badly sold loans they could not afford. Similar issues sparked the collapse of former industry leader Wonga in 2018 and The Money Shop in June.
Grant Thornton is prepared to handle the liquidation of CashEuroNet UK if Enova decides to place the division under administration.
Enova chief executive David Fisher criticized the financial ombudsperson, who settles disputes between lenders and clients, for shifting the focus of his complaint process.
“Over the past year and a half we have experienced a difficult and uncertain regulatory environment in the UK, despite the fact that the FCA [Financial Conduct Authority] reviewed and approved our business practices and affordability criteria in 2015. FOS, the Financial Ombudsman, continued to advance the goals with its complaint handling decisions, thereby establishing evolving de facto policies that in many cases many cases were inconsistent with FCA guidelines, ”Fisher said.
Fisher said the FCA and the financial ombudsman had not clarified “the future state of complaints handling,” adding: “Despite our best efforts to reach a resolution, we were unable to find a way forward. that provides us with the clarity we need to continue investing in our UK business.
CashEuroNet UK accounts for up to 25% of the UK payday loan market, according to an industry insider. Although the total number of CashEuroNet UK customers is not disclosed, its QuickQuid website claims to have served “1.4 million customers and there is more to it”.
The convenience industry has suffered from political and regulatory pressures on its business model, which charges high interest rates on loans. A QuickQuid customer taking out a £ 250 loan for three and a half months would be charged interest rates equivalent to an annual percentage rate (APR) of 1,300%, according to an example on the lender’s website.
The company’s problems, first reported by Sky News, are putting additional pressure on the payday lending industry, which is still recovering from the Wonga collapse. Wonga was put into administration after a surge in complaints about excessive fees on historic loans, which in some cases carried interest rates equivalent to an APR in excess of 5,000%.
A similar increase in complaints contributed to the collapse of pawnshop and payday lender The Money Shop, owned by Instant Cash Loans.
Payday lenders in the UK have struggled to keep up with new regulations introduced by the Financial Conduct Authority in 2014. This resulted in a cap on payday loan fees, preventing lenders from charging more fees and interest than the amount borrowed, and also imposed affordability controls.
These changes not only restricted income for lenders, but also led to a wave of complaints from clients who said they could not afford the loans that were sold to them. The complaints were lodged with the Financial Ombudsman Service, which resolves disputes between lenders and customers.
Sara Williams, debt activist and author of the Debt Camel blog, said: “Wonga and the Instant Cash Loans group have already been slashed by the cost of paying off payday loans, now CashEuroNet also appears to be on the verge of extinction.
“CashEuroNet has previously criticized the financial ombudsman for taking an overzealous approach to complaints about the affordability of payday loans. But the regulator’s rules on affordability have largely remained the same for over 10 years.
A loan is only deemed affordable if a customer can repay it without having difficulty, falling behind on bills or having to borrow again, she explained. “But too many CashEuroNet customers have found themselves so short of cash when they have paid off a loan that they have been forced to keep borrowing for months or even years. When the financial mediator declares that a client has obtained unaffordable loans, the lender must repay the interest charged. So many QuickQuid customers are being reimbursed for thousands of pounds, ”Williams said.
Enova, the US-based parent company of CashEuroNet UK, said last year that an increase in business complaints to the Financial Ombudsman Service could have a “negative effect” on its UK operations. He accused the ombudsman of adopting a “very user-friendly approach to his complaint handling and dispute resolution process.”
In July this year, the company said that a 19% increase in its operating and technology costs across the business was in part due to “ongoing expenses associated with customer complaints in the UK. United “. He also revealed that revenue from its UK operations suffered a 20% drop in the first half of 2019 to £ 55million.