Wageday Advance (WDA) is not giving its customer a Final Response to complaints within eight weeks. At the end of the eight weeks it is telling customers it needs another eight weeks to consider their complaint.
UPDATE two customers have reported in the comments below that they have still not received responses after 20 and 21 weeks.
This article looks at why Wageday Advance is receiving so many complaints, its financial problems and the discussions it is having with FCA.
Eight weeks is the normal target for complaints
Eight weeks is the target set by the FCA. After that, a customer can send a complaint to the Financial Ombudsman (FOS). WDA is correctly telling its customers they can go to FOS at the eight weeks point.
Other payday lenders sometimes fail to meet the eight-week target by a few weeks but only WDA seems to have adopted 16 weeks as its target for a prolonged period. It appears to have been adopted as WDA’s standard policy since October.
At first I assumed this was a temporary measure caused by the high complaint volumes all payday lenders received in August and September following the publicity about Wonga. But it is now continuing when most other payday lenders are back to replying within the eight weeks.
WDA’s financial problems from complaints
Wageday Advance started in 2004, one of the earliest payday lenders in Britain. In 2013 it was bought by Curo, an American company that specialises in sub-prime lending.
Curo announced in its 3rd quarter results in October 2018 that WDA had paid c $4million in claims costs in the previous quarter, up from $1.4m in the 2nd quarter.
After careful consideration, we do not believe that, given the scale of our U.K. operations, we can sustain claims at this level and may not be able to continue viable U.K. business operations without action by the U.K. business to reduce the risk of claims relating to historic lending. We have been in ongoing discussions with relevant regulators, including the Financial Conduct Authority (“FCA”) and the Financial Ombudsman Service with regard to our alternatives.
… We are evaluating, and are discussing with the FCA, several potential courses of action including potential solutions to allow the firm to finally resolve liabilities associated with historic lending. The potential alternatives under consideration may require approval of the FCA, consent under certain of our debt facilities and court approval in the U.K.
The claims referred to here are payday loan affordability complaints, where the borrower is saying WDA did not make proper checks that they could afford to repay the loan without having to borrow again. The typical compensation for this is a refund of the interest paid, removing all the lender’s profit on the loans.
WDA had 749 cases sent to the Financial Ombudsman in the first six months of 2018. During this time the ombudsman agreed with the customer in 56% of WDA cases.
Lenders are supposed to apply the same approach to determining a customer complaint that FOS does. The average uphold rate at FOS across all products is only 30%. WDA’s very high uphold rate suggests they are not correctly assessing customer complaints.
Irresponsible lending by WDA
“We accept 85% of all applications” – and no credit checks!
Those statements were on WDA’s website in January 2012. The following pictures all come from that date.
It doesn’t sound as though they were very careful about checking if people could afford their loans. Wageday Advance saw no credit checks as being a selling point for their customers:
Although WDA didn’t do credit checks, they did sometimes ask customers to provide a bank statement. But they don’t seem to have looked at them carefully. In Mrs K’s case, where she had 2 loans and the second one was rolled three times, the Ombudsman comments:
it’s not enough to simply gather information. A lender needs to look at what it has and react to what it sees.
Frequent loan extensions
Before 2015, Wageday Advance also encouraged customers to apply for more loans or to extend a loan. Extending a loan is sometimes called rolling or deferring it – it involves just paying the interest one month then next month paying another lot of interest and repaying the amount borrowed. For some customers, this led to long periods of continuous borrowing from WDA. Here is Mrs M’s case – she had 24 loans and 18 deferrals from 2010 to 2014.
Multi Pay (MPay) – charging extremely high rates for 18 month loans
I don’t know when this product was introduced by WDA. It was discontinued after the FCA introduced the payday loan cap, even though technically it would not be caught by the cap as the loan was for more than 12 months.
In Mr J’s case, he borrowed £350 and he had to pay back £1,800 at a rate of £100 a month for 18 months, an APR of over 2,400%. Normally you can’t win a payday loan complaint by saying the interest rate was too high, you have to show the repayments were not affordable, but in this sort of loan WDA was charging the sky-high interest rates used for very short term loans for a prolonged period. The ombudsman looking at this complaint decided:
this MPay loan had an interest rate so egregious that I think a court may well have found it grossly exorbitant and that the agreement required payments which grossly contravene ordinary principles of fair dealing.
Post 2015 – better lending?
Like all UK payday lenders, WDA was forced to reduce its interest rates, restrict roll-overs and make improvements to its affordability checking after the FCA introduced the payday loan price cap in 2015.
But FOS decisions show that WDA continued to make some poor lending decisions. Here are a few examples picked at random, they are not isolated cases:
- Miss W borrowed eight times from WDA between November 2015 and July 2017. The Ombudsman decided WDA must refund the interest on the last six loans.
- Mrs D borrowed three times from WDA between June and September 2016. Although the loan sizes were small, the ombudsman ordered a refund as the credit checks that WDA made revealed a high level of other debt which she hadn’t included in her application.
- Miss T had 14 loans from November 2015 to December 2016. By the 5th loan, WDA should have considered that Miss T may have been dependent on the loans and performed a full financial check which would have found a significant amount of gambling.
WDA’s current instalment loans
One way to make sure more lending is affordable is to move away from the classic borrow one month, repay it all the next, payday loan to longer terms where the monthly payments are lower. In 2016, two-thirds of its turnover came from simple one payment payday loans and one third from instalment loans. In 2017 that reversed, so two-thirds of its business was from longer-term loans.
But for its two- and three-month loans, WDA currently has a “balloon payment” structure. So someone borrowing £300 over three months would make three payments of £69, £72 and a final one of £372.
This has the advantage for WDA that it maximises the interest they can charge on the loan. And it may look more attractive to a borrower who only looks at the size of the first repayment. But the large final payments means these balloon payment loans do not help with affordability issues.
How can WDA resolve its complaints liabilities?
So WDA’s parent company has said that it needs a solution to the liabilities caused “by historic lending” and it is talking to the FCA and FOS about this.
It’s not clear what WDA means by “historic lending”. Loans over 6 years old? Loans pre 2015? Loans pre October 2018? The problem with picking any date is that WDA’s unaffordable loans have persisted over a long time and there is no indication that they have currently stopped.
The responsible approach by WDA (and indeed all other payday lenders) would be to have an automatic refund program. It could look through its database of loans to determine which customers it lent to many times and to offer them redress from say the fourth or fifth month. This would save cut WDA’s internal complaint handling costs and eliminate the need to pay FOS fees on any of these cases. Complaints would then be significantly reduced to those customers who only borrowed a few times, many of who would only have weak cases.
It is hard see what other alternatives would be acceptable to the FCA if WDA wishes to carry on in business, which it presumably does, as it appears to be making good levels of profit on its current lending. Why would the FCA want to set a precedent of allowing an authorised firm to pay reduced or no compensation to its customers who have suffered harm from the firm’s actions?
What can a customer do?
There is nothing you can do to speed things up directly. I do suggest sending your complaint to the ombudsman at 8 weeks. WDA are not responding with reasonable offers at 16 weeks so it isn’t worth waiting for.
You could also leave a bad review on Trustpilot if you have been kept waiting for over 8 weeks (or a good one if you have actually been made a good offer of course!) A warning to anyone else thinking of dealing with them about how badly they treat their customers.