UPDATE – loans sold
On 2 October 2020, the Sunny administrators sold part of the Sunny loan book to Perch Capital, who employs Asset Collections and Investigations Limited (“ACI”) as their debt collections agency. The loans that have not been sold have been written off.
This is what has happened:
- the administrators have assessed all the open loans to see if the customers might have a good affordability complaint. They looked at whether the borrower’s income was sufficiently verified and whether there were more than 5 loans without a break in lending.
- if this found that a refund was due, it was used to reduce or write off the loan balance;
- where the balance was written off, customers credit record will be marked as settled in full. I hope any default will be deleted but this has not be clarified.
- where a balance remained, it has been sold to Perch. Customers do not have a right to object to this sale.
People are being informed by email from the 5 October whether their loan has been written off or reduced. And if it has not been written off, they will be told by email that their loan has been sold.
People who do not owe a current balance are unaffected by this.
Will there be any money for refunds?
The administrators say people may be allowed to submit claims in November, if sufficient funds are available in the Administration for a distribution to be made to unsecured creditors. The administrators will also explain then what people who have already submitted claims, or who had claims agreed but not paid when the company went under, need to do.
But that “if” clause is important. The administrators are saying that there may not be any money to distribute, so in that case there would be no point in people submitting claims.
This is in line with the Administrator’s Proposals published in August which said:
Based on current estimates, it is uncertain whether there will be a dividend to unsecured creditors. As a result, at this stage we are not adjudicating customer redress and others unsecured creditor claims.
I don’t know how likely it is that there will be no money left. It may just be the administrators being very cautious. It may depend on how much they have sold the loan book to Perch for.
But even if there is no money to pay out, many Sunny customers will be concerned that their claims should be assessed as they will want unaffordable loans removed from their credit record.
Background to the Administration
Administration started in June 2020
Elevate Credit International Limited (“ECIL”), which traded as Sunny, 1 Month Loan and Quid went into administration on 29 June 2020. KPMG has been appointed as Administrators. They have published some FAQs in the Sunny Administration here.
Sunny was a large UK payday lender.
This had been expected since the news that the company had filed a Notice of Intent to appoint administrators the previous week.
Sunny joined the long list of lenders which have failed in the last year because of the increasing refunds to customers who had been given “unaffordable payday loans“: QuickQuid, Moneybox 247, Swift Sterling, Piggybank, Nextcredit, Peachy, Uncle Buck.
Sunny’s unaffordable loans
Since 2015 an increasing number of people have complained about unaffordable payday loans from all lenders, including Sunny.
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.
The Financial Ombudsman (FOS) has set out what it looks for in a case about unaffordable lending. If the first few loans were small a lender doesn’t have to do a lot of checks on affordability. But when a borrower keeps on applying for more loans, that is a sign that the lenders should make detailed checks the loans are affordable. Repaying a loan on time does not mean it is affordable if the borrower has to borrow again.
In the last half of 2019, FOS received 2,897 complaints about Sunny and it agreed with the customer in 76% of Sunny cases. This is more than twice as high as the average FOS uphold rate across all cases, which was just 35% for that period.
This very high uphold rate suggests that Sunny has given out a lot of unaffordable loans. I have seen many cases where people have borrowed continuously from Sunny for more than a year. Sometimes people have had more than 40 loans.
Sunny’s poor complaint handling
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.
Sunny has only been upholding 8% of complaints made to it.
If Sunny had made decisions in line with FOS decisions, fewer cases would have had to go to the Ombudsman, Sunny would not have had to pay the FOS fees and its FOS uphold rate would have been much lower.
US parent blames administration on lack of regulatory clarity
Elevate Credit, Inc said in 2019 that it thought the regulatory situation was “unclear” and it was seeking clarification
Jason Harvison, President and CEO of Sunny’s US parent, Elevate Credit, Inc today said:
Regulators in the UK were unable to provide clarity that would allow Sunny to continue.
In my article last year Sunny concerned about lack of regulatory clarity I gave examples of various FOS Sunny cases. They seemed consistent to me.
Sunny may not have liked the FOS decisions about its cases, but they were inline with FOS decisions about other payday loans and it is hard to argue that they are unclear.
Sunny lost a major court case
Sunny were involved in a major court case in March with a claims company. The judgment was only published in August 2020, this said that Sunny’s repeat lending is likely to have caused an “unfair relationship” with the borrowers. This would have been a very bad result for Sunny and if it was expected, that may have been one of the reasons that Sunny went into administration.
Administration is not a good result for customers – the FCA should act
Although I am encouraging people to put in complaints, they are now not going to get the full amount of compensation that FOS would have assessed.
This is not an acceptable situation.
In the case of Sunny, the FCA has known for several years that Sunny was not making good offers to complaints. Why has the FCA allowed this to continue?
And why has the FSCS not been extended to cover customers who have been given unaffordable loans?
I listed my proposals in More payday lenders go under – was anything learned from Wonga? and they remain relevant now. With every high-cost lender that goes under, the need for action by the FCA gets more urgent.