UPDATE – Sunny went into administration on 29 June.
See Sunny now in Administration for details, including the implications for customers.
And see Kerrigan v Elevate Credit – an “unfair relationship” for my thoughts on the court case Sunny lost, badly.
Elevate Credit International Limited, which trades as Sunny, has filed a Notice of Intent to appoint administrators. It told the Telegraph that:
“Unfortunately, due to the ongoing economic uncertainty as a result of coronavirus and the continued regulatory pressure on the business, we have had to take the difficult decision to give notice to appoint administrators.”
A Notice of Intent gives a company ten days of protection from its creditors.
Sunny is one of the largest UK payday lenders. If it fails, it will join a long list of lenders who have collapsed in the last nine months: QuickQuid, Moneybox 247, Swift Sterling, Piggybank, Nextcredit, Peachy, Uncle Buck.
Sunny’s US parent had previously been hopeful
Elevate Credit International Limited is the UK subsidiary of the US subprime lender Elevate Credit, Inc.
In May 2020, Elevate Credt, Inc, said its net income from the UK had decreased by $6 million from the previous year, resulting in a net loss for the quarter. It attributed this loss to:
a shrinking loan portfolio, along with a steady stream of affordability complaint expense.
Sunny had made just 10,000 new customer loans in Q1 2020, down from 30,000 in Q1 2019. This was attributed to:
the ever stringent customer affordability regulations in the UK.
But at that time the US parent said:
we remain hopeful that we can work with the UK regulators during the second quarter of 2020 to come to an understanding on how we can begin growing the UK business again, as our UK unit economics are very good.
With the UK subsidiary looking likely to fail, it seems its US parent has given up this hope.
Sunny losing 76% of cases at the Financial Ombudsman
In the payday loan trap, repaying a loan leaves the borrower so short they have to take out another one. And another one. And another one.
The FCA says that a lender has to make reasonable checks that a loan it gives is “affordable” – that the borrower can repay the loan without having to borrow more money or fall behind with other bills and debts.
Since 2015 an increasing number of borrowers have complained that Sunny and other payday lenders have given them unaffordable loans.
The Financial Ombudsman (FOS) has set out what it looks for in a case about unaffordable lending. If the first loan was small a lender doesn’t have to do a lot of checks on affordability. But when a borrower keeps applying for more loans, that is a sign that the loans aren’t affordable, even if they are repaid on time.
In the last half of 2019, FOS received 2,897 complaints about Sunny. During that six months, FOS agreed with the customer in 76% of Sunny cases. This is more than twice as high as the average uphold rate across all FOS cases, which was just 35% for that period.
The FCA’s DISP rules, which set out how firms have to handle complaints, say lenders should learn from FOS decisions and make the same decisions themselves when a customer complains. But Elevate Credit, Inc said in 2019 that it thought the regulatory situation was “unclear”. In my article last year Sunny concerned about lack of regulatory clarity I gave examples of various FOS Sunny cases. They seemed consistent and clear to me.
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