UPDATE A few people have not been paid by the end of June.
And everyone will receive a second, much smaller payment in December 2021.
See Money Shop Scheme to pay 2nd small refund for details.
A “Scheme of Arrangement” is in place for borrowers from the Money Shop, Payday UK or Payday Express who were given unaffordable loans.
Background to the Scheme
Failure to assess affordability over many years
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. See What is a Scheme? for more details. ICL is using this to limit the amount it has to pay out in refunds on unaffordable lending.
The Scheme was approved by creditors in September and by the Court on 8 October 2019.
Paying 4.3% in May & June 2021
A claims portal was put live and all Claims had to be in by April 9 2020.
The Money Shop home page says:
- We have calculated the final dividend amount and you will be receiving 4.31p per £1.
- Where you provided us your bank details we will commence making payments from 24 May 2021.
These payments will be made by BACS. People will be paid in batches, once or twice each week through to the end of June:
- We are unable to let you know the exact date of your payment.
- You will receive an email before we make your payment with your calculation and cash payment amount.
- If you did not provide us with bank account details, we have sent you a cheque.
The following details come from the March 2021 Scheme report:
- 182,566 Claims were received;
- the uphold rate was about 85%;
- the total compensation people should have got was c. £340 million – now people will only get a tiny amount of that back;
- it is now too late to submit a Claim.
No tax will be deducted from the amount you will be paid.
Was your ICL debt sold to PRAC/BW Legal?
Where you still owe ICL a balance on the last loan, this has been “set off” against your refund.
- you should have had a refund of £2500 and you stilled owed £1000
- then your balance is cleared, leaving you now being owed a refund of £1500
- you then get 4.3% of the £1500
If your last loan was sold to a debt collector, in most cases ICL has arranged for you to still have this set off.
The exception is if your loan was sold to PRAC/BW Legal. Here you have been left owing the debt to PRAC/BW Legal and were only paid 4.3% on the redress ICL calculated.
PRAC/BW Legal is offering to reduce some customers’ balances, but see No set off in a Scheme/Administration when debt had been sold? for how you can complain and ask them to write off your whole balance.
A very poor outcome for customers
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 4.3p is a dismal outcome for customers.
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.
Updated July 2021