A “Scheme of Arrangement” is in place paying some money to borrowers from the Money Shop, Payday UK or Payday Express who were given unaffordable loans.
Claims to the Scheme had to be submitted before the deadline in April 2020. It is now too late to submit a Claim if you have not already done this.
The following information comes from the latest Scheme report dated 22 May 2020:
- 182,566 Claims were received;
- it is expected that c 85% will be upheld;
- it is expected the total compensation value calculated will be c. £336 million;
- scheme costs have risen so there will be less money to distribute;
- the current estimate of the amount people will get paid has fallen to 4.1p in the pound/£;
- the scheme administrators say they “consider a prudent estimate of the final outturn to be between 3p/£ and 4p/£.”
- the scheme has been extended by a couple of months and it is now expected that the payout will be in April or May 2021.
3-4p in the £ – when 80p was originally suggested…
This is a dismal update for the 155,000 people that should receive some compensation. Not only will it not be paid for another year, but once again the projected payout has fallen.
When the Scheme was proposed in August 2019, it was suggested people might get back nearly 80p in the pound.
My first thought when I saw the 80p in the £ estimate was “and pigs might fly“… see Will the Money Shop really pay 80% of your payday loan refund?
And that has turned out to be spot on…
In September it admitted that:
- it has decided to include all loans over 6 years which may reduce this to c. 44p.
- it has decided to simplify the assessment in favour of the customers, which may further reduce this to 27p.
- if twice as many people apply for a refund, this may go down to 14p.
By February 2020 in the previous quarterly report, the scheme administrators were warning this could be less than 10p.
So the latest report is a shocker. 3-4p in the pound will be even less than Wonga and Wageday Advance have paid.
The only people that are doing well from these administrations and schemes are the accountants and lawyers.
Background to the Scheme
ICL had two million customers, with three big payday lending brands:
- The Money Shop was once Britain’s largest payday lender on the high street. The Money Shop stopped making payday loans in August last year.
- Payday UK and Payday Express were two large online lenders. These both stopped making new loans in October 2017.
In summer 2018, the number of affordability complaints about payday loans increased significantly. Paying refunds on these complaints forced Wonga and Wageday Advance to go under.
In the last half of 2018, ICL received 45,000 complaints. So ICL has been facing escalating costs in the last year and it has been closing shops. Now the business is being closed completely because of the cost of these complaints.
A Scheme of Arrangement is a legal device which limits a company’s liability to its creditors. ICL is using this to limit the amount it has to pay out.
The Scheme was approved by creditors in September and by the Court on 8 October 2019. A claims portal was put live and all Claims had to be in by April 9 2020.
Why won’t the FSCS help these customers?
The Financial Services Compensation Scheme (FSCS) covered people making PPI claims if their firm had gone bust.
But the FSCS doesn’t cover payday loans. This was a very poor decision by the FCA.
Customers of the Money Shop, Payday UK and Payday Express have been let down badly by the UK regulators. The lenders were allowed to carry on giving loans that breached the affordability rules for years. And now there is no backup compensation scheme for when a lender goes under.
Did you borrow from other lenders?
If you have borrowed from other lenders, you may be able to get refunds from them.
Read How to make a payday loan affordability complaint which explains all this and has free template letters that have worked for thousands of people.
Updated June 2020