Sunny goes into administration – what should customers do?

Elevate Credit International Limited (“ECIL”), which traded as Sunny, 1 Month Loan and Quid went into administration on 29 June 2020. 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 last week.

Sunny joins the long list of lenders which have failed in the last nine months because of the increasing refunds to customers who had been given “unaffordable payday loans“: QuickQuid, Moneybox 247, Swift Sterling, Piggybank, Nextcredit, Peachy, Uncle Buck.

KPMG has been appointed as Administrators. They have published some FAQs in the Sunny Administration here.

The administrators will publish their proposals in a month or two about how they propose to run the administration.

But we have now seen several large payday lender administrations. So, assuming Sunny’s will follow the same pattern as the Wonga, Wageday Advance and QuickQuid, I will try explain what is likely to happen and what the customers of Sunny, past and present should be thinking about.

This page will be kept updated as further details emerge over the next few months.

Background to the administration

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.

What is likely to happen in the administration

The Administrators will try to sell Sunny’s assets and recover as much as possible from borrowers who still have a loan to repay.

The administrators may try to sell the loan book to a debt collector. The Wonga administrators didn’t manage to do this and nor have the QuickQyuid administrators so far. And this will be made more complicated by the Covid-19 situation.

They will also ask people who are owed money by Sunny to make a Claim. This includes customers who were given unaffordable loans – they could be owed money for a refund.

People with an unaffordable lending complaint are often referred to as redress creditors but they are treated the same in the administration as all other unsecured creditors such as HMRC, the Financial Ombudsman, IT suppliers etc.

The administrators will have to decide who has a valid Claim and assess how large the refund should be. In previous payday loan administrations this has involved:

• developing a computer program to assess the complaints;
• trying to mimic the outcome FOS might have reached on a complaint;
• including all loans, including ones that are over 6 years old.

When all assets have been sold, all claims assessed and priority creditors (such as employees) have been paid, the Administrators will divide up the remaining money so all the unsecured creditors receive the same percentage paid out.

There is not likely to be enough money to pay people in full.  The Financial Services Compensation Scheme will not help you as it does not apply to payday loans.

What should Sunny customers do – affordability complaints

5 key points for all customers

If you think you were given unaffordable loans, following these points may help to make the next year or so less stressful.

1. Keep an eye on what is happening! What I am writing here is based on what has happened in other administrations. It’s important that you check back in a few months and see what the Sunny administrators are proposing as this may be different. This page will be kept updated.
2. Look out for emails from the administrators Some of these may go into your spam folder.  Try to keep all these emails.
3. You may need to complete a Claim Form. If you have already sent a complaint in, this may be automatically accepted as a Claim but it is possible you may need to complete a simple Claim page, to confirm your Claim and/or to confirm your bank account details.
4. Try not to close the bank account your Sunny loans went into. Although you can get your refund paid into a new account, this is an area that has caused problems and delays in other administrations. So avoid it if possible.
5. Don’t plan on having a refund soon. 12-18 months is most likely.

If you already have an agreed refund amount

You could have an agreed refund directly from Sunny or have a Final Ombudsman decision in your favour or have had Sunny accept an adjudicator decision. Here you would have been expecting to be paid in the next few weeks.

It is now very unlikely you will be paid. The administrators will normally stop all payments.

You will then have a Claim in the Administration. You will be paid the same percentage as anyone else making a complaint, you do not get any priority because yours was so close to being settled.

If you have a complaint with Sunny

Sunny will probably stop work on your complaint. You won’t receive a decision within the 8-week time limit – that no longer applies – and you will not be able to send your case to the Financial Ombudsman when you don’t receive a response.

Your complaint will be a Claim in the administration.

If you have a complaint with the Financial Ombudsman

FOS legally can’t carry on working on these cases, so it will return them to the Administrators to settle.

Your complaint will be a Claim in the administration.

This may feel unfair, but the administrators will be aiming to decide Claims using something similar to the FOS approach, rather than Sunny’s previous approach of rejecting a lot of good complaints.

If you haven’t yet complained

This applies if you still owe money (see below about paying the outstanding loan) or if all your loans have been settled.

If you think Sunny gave you loans you could not repay without borrowing again, send an email complaint to Sunny customer services.

Put Affordability Complaint as the subject.

This can be very short, you don’t need to know all your loan details, you are just saying you want to make a complaint. For example:

I was given unaffordable loans by Sunny. I would like to claim a refund of the interest I paid.  My name is xxxxxxxxxxxxxxx. My email address at the time of borrowing was xxxx@xxxxxx. My full name is xxxx xxxxxxxx. My date of birth is dd/mm/yy.

It really is that simple. Don’t sign up with a Claims Company to do this.

If you had a poor result from a complaint

If Sunny rejected your complaint and you didn’t go to the ombudsman, or Sunny gave you a poor offer, you will probably still be able to put in a Claim to the administrators. I suggest waiting until the Administrators tell you how to do this.

Customers with a current Sunny loan – should you pay it?

You still legally owe this money even though Sunny has gone bust.

The Administrators may sell your loan to a debt collector, although this hasn’t happened in the Wonga and Sunny administrations.

If your loan isn’t sold, the Administrators will want you to carry on paying the loan repayments. But should you? Work out which of the following three cases you come into:

(A) you only had a few Sunny loans AND you can repay this loan without difficulty 
Here repaying the loan as normal is your best option as you are not likely to win an affordability complaint and doing this protects your credit record.

(B) you only had a few Sunny loans AND you will struggle to repay this one
You need to ask Sunny customer services for a payment arrangement where they freeze interest, so you can make lower monthly payments over a much longer period. If your income has been badly hit by Covid-19 for example, you may only be able to afford to pay £1 a month – in that case, offer Sunny that.
Don’t try to borrow from another lender to be able to repay Sunny.

(C) you had a lot of Sunny loans
This is the complicated case because you probably have a good affordability complaint. With only two or three loans, you won’t win an affordability complaint unless the loans were very big.

You can either:

• pay Sunny now and get a small percentage of your calculated refund later, or
• refuse to pay Sunny now so that when they calculate your refund they can use that to clear your balance.

Here is an example with simple numbers showing why it is better to stop paying Sunny until they assess your claim:

Mr X had 8 loans from Sunny and still owes £400 for the last loan. He sends the administrators a complaint and they decide loans 5-8  were all unaffordable. That would be a refund of £650.
If he has paid Sunny the £400 he owes, he will only get a small amount of this £650 refund, say 10%, so he would get £65. Overall he has lost £335.
But if he hasn’t paid Sunny, 400 from his refund will be used to pay off the balance and he will get 10% of the remaining £250, so overall he has gained £25.

Is it worth complaining for a small amount?

Wonga and Wageday Advance customers only got about 5% of their refund in the end. So you may wonder if it’s worth complaining…

I think it is:

• it’s very easy! Just a simple email to send, see above;
• if lots of people don’t bother to complain, the people who do complain could get a surprisingly large percentage back;
• it won’t be known for a long while how much money there will be in the case of Sunny;
• you may be surprised at the amount of interest you paid. Many Sunny customers have had refunds of thousands of pounds, so even if they only pay out a low percentage, you could still get hundreds of pounds;
• the loans that are decided to be unaffordable will probably be deleted from your credit records. Many Wonga customers said that was worth more than the refund!

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?

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.

In November 2019 Stella Creasy MP called for an inquiry into the FCA over Wonga and QuickQuid.

With every high-cost lender that goes under, the need for action by the FCA gets more urgent.