Partial Refunds By Lending Giants May Set Negative Precedent for Future Claims
Many of the UK’s largest lenders are facing backlash from financial experts and politicians due to the mishandling of compensation claims.
Over recent years, some of the nation’s most well-known lending services have faced large compensation claims for offering loans to individuals that were impossible to repay. As such, they are coming under fire for a lack of suitable affordability measures during the application.
Typically, loans should only be given in the case of a clear repayment plan and profiles are assessed against strict lending criteria in order to approve this. Yet, it seems like some lenders were negligent and provided loans for those who lacked sufficient income, were unemployed or on benefits.
Now, many large UK lenders are dealing with these claims and, in some cases, having to pay administration fees of up to £500 per claim to the Financial Ombudsman if a complaint had been upheld. This has forced many large lenders into administration. Wonga, for example, was forced to pay out up to £500 million in compensation.
In recent weeks, Amigo Loans, another leading company in the short-term loans sector, has tried to pay out yet more claims, despite previous payouts of up to £50 million. The Financial Conduct Authority (FCA) proposed a solution for Amigo Loans to repay between 5-10% of the value of the outstanding missold claims. They believe that this amount means that Amigo Loans can avoid administration.
However, many are now criticising this solution. Members of parliament, as well as Martin Lewis from MoneySavingExpert, believe that customers are entitled to receive full compensation. By making this exception for Amigo Loans, it is thought that many future lenders may follow suit and try to take advantage of borrowers.
Stella Creasy, Labour MP, believed that this action would be “setting a precedent” for other lending companies and giving the impression that it is “okay for a company to go bust and not repay consumers”. They believe that this action is benefitting the lenders at the cost of the borrowers who cannot afford it. She even went as far to say that the “business model is about exploiting consumers”.
Martin Lewis, founder of MoneySavingExpert, implores the FCA to intervene and ensure that a “fair and proportionate balance of the money available from Amigo for redress is given back to customers”. He goes on to say that many of their customers have “had their lives made very difficult by being mis-sold hideous, over-expensive loans”.
David Beard, founder of LendingExpert, went on to comment “a lot of customers were granted high-cost loans that they simply could not afford and they were given top-up loans and rollovers, which led to an inevitable spiral of ongoing debt”.
He continues: “with the Financial Ombudsman upholding around 88% of claims for Amigo so far, we may need to have stricter guidelines over what you can claim for and what lenders are allowed to lend to.” He criticises the industry and calls for stricter guidelines to avoid exploitation of customers.
The case regarding Amigo Loans is currently pending. If they are forced to repay the compensation claims, they risk administration. In 2020, Wonga paid out just 4.3% of the value of refunds owed to their former customers which was enough to force them into administration. Yet, if they follow the solution proposed by the FCA, they risk setting a precedent for future lenders and further exploitation of short term loan borrowers.