In the Instant Cash Loans (ICL) Scheme Arrangement, Money Shop, Payday UK and Payday Express customers whose debts were sold to PRAC Financial (PRAC) have not been given set-off between their ICL redress and the loan they still owe.
The same situation could occur with other Schemes of Arrangement and other debt collectors. It could also arise in administrations, for example Sunny loans that were sold to SLL Capital.
This article looks at this and suggests how affected customers may be able to make a complaint to the Financial Ombudsman (FOS).
NB what is suggested here is not of general use where a debt has been sold. See the When NOT to make this complaint section at the end.
Money Shop, Payday UK and Payday Express debts sold to PRAC
Customers of the Money Shop, Payday UK and Payday Express have been able to make a claim to the ICL Scheme for unaffordable lending.
Where their claim is upheld and a cash refund is due, they are expected to receive about 4% of the proper refund in May/June 2021.
When money is still owed to ICL
Where someone has an outstanding debt to ICL:
- any refunds are first used to repay the balance owed through the right of set-off;
- the “only 4%” part is then applied to the rest of the refund after set off.
An example shows how this works. Suppose you owe ICL £400 and your refund should be £1000. If the £400 of the £1000 refund is used to clear your loan, you will then receive 4% of the remaining £600 = £24 in cash. That is much better than receiving 4% of £1000 = £40 and still owing £400.
So this set-off gives a good result for the customer – much better than getting a very slightly larger cash refund now but still owing a large balance.
What happens when the loan was sold
But what happens when ICL had previously sold the loan to a debt collector, so the customer owes it to the debt collector, not ICL?
ICL has tried to reach an agreement with all the debt collectors it has used so that this “set off” can still be applied. This seems to have worked with all the debt collectors with the exception of PRAC.
If your loan was sold to one of the other debt collectors, ICL is offering you the choice between having the loan set off or getting the 4% on the large amount and still owing the balance to the debt collector. Most people will be much better off if they choose the set-off!
I don’t know why this hasn’t been possible with PRAC. ICL is explaining this to PRAC customers as follows:
You currently have a balance outstanding on a loan that one of our firms originally provided, which we subsequently assigned to PRAC, a debt purchaser. If we had not assigned the loan, you would have been able to set off your redress against that loan.
However, since PRAC is the legal owner of that debt we are unable to apply set off and must therefore pay you the dividend amount, which we expect to be around 4p/£.
You may if you wish decide to use your dividend payment to pay down your outstanding balance with PRAC, but that is a matter for you and is something which must be done outside of the Scheme.
PRAC customers will be a lot worse off because of this.
The legal background – equitable set-off
I am not a solicitor. And I am not suggesting a customer needs to go to court about this. This is just provided as some background to what follows.
Equitable set-off applies where two claims are so closely connected that it would be manifestly unjust for one claim to be enforced without it being reduced or extinguished by the other claim.
The ICL redress obligation arose at the point of creating the loan from a breach of OFT/FCA affordability regulations resulting in an unfair relationship under the Consumer Credit Act. The loan owed by the customer to PRAC and the redress owed by ICL to the customer arose at the same time from the same contract so they are closely connected. It is arguably manifestly unjust to not allow set-off in this situation as the loan was originally mis-sold.
What can customers do?
Complain to PRAC
I think you should complain to PRAC and to their agent BW Legal.
- Give the PRAC/BW Legal reference number for the loan where you still owe a balance.
- Say the ICL Scheme has determined that this loan was mis-sold and that you were due a redress total of £x from ICL. Attach the email or a copy of a letter you have from ICL that shows this total.
- Ask for this to be set-off against the balance you owe PRAC.
- And ask for all negative information on your credit record to be removed.
This is a simple email. You don’t need to explain why you think you have a legal case for this or go into details about all your previous borrowing from ICL.
If rejected, send it to FOS
If PRAC or BW Legal rejects the complaint, send it immediately to the Financial Ombudsman (FOS).
At FOS your complaint is against PRAC Financial Limited, even if BW Legal responded to your complaint. BW Legal are just PRAC’s agent.
Send the complaint to FOS even if PRAC/BW Legal sent you an impressive-looking lot of legal stuff about why you do not have a valid complaint.
In your FOS complaint say that PRAC is behaving unfairly by not allowing you equitable set-off between the ICL redress. Attach the decision from ICL about your redress and the rejection from PRAC/BW Legal.
FOS looks at what is fair and reasonable in a case. This is not the same as what a court might decide so you do not need to make a legal argument to FOS. One of the FCA’s core principles is that “A firm must pay due regard to the interests of its customers and treat them fairly“.
“Will this work?” I hope so! But I haven’t seen any complaints like this so far.
“What if they take me to court?” Once you have a complaint in with PRAC/BW Legal they should not start a court case against you. This includes if you have an open case at the Ombudsman, which is why you should immediately send a rejection to FOS. Leave a comment below this article if they threaten to start a court case.
“What if I already have a CCJ from BW Legal” Add a sentence to your complaint email asking for the CCJ to be set aside.
Any other questions – ask them in the comments below this article.
Other Schemes & Administrations
This situation could occur in other Schemes and with other debt collectors. But it may not – all the other debt collectors in the ICL case co-operated with ICL to provide set-off.
It could also potentially arise after administrations. For example, a lot of Sunny loans were sold to SLL Capital. If the Elevate Credit administrators have told you the value of your potential redress for Sunny loans, you could ask SLL to reduce your balance in set off.
When NOT to make this complaint
This sort of complaint won’t work if you have already repaid the loan to the debt collector. Set-off only applies if you have a balance.
If the lender is still operating, you need to make an affordability complaint to the lender, not a complaint to the debt collector. If you win the complaint with the lender, directly or through the ombudsman, the lender will calculate your refund taking account of the balance and what you have paid the debt collector.
When the lender has gone into administration, you need to make a claim to the administrators and wait until you get a response from them.
If you do not have an affordability complaint, this complaint to a debt collector is not relevant.