Curo, the American parent of payday lender Wageday Advance (WDA), is in talks with the FCA about a Scheme of Arrangement (SOA) for its redress liabilities in the UK. See Curo’s statement in its end of year results.
These liabilities are the payday loan refunds that WDA is having to pay to current and previous customers who were given unaffordable loans.
Curo has proposed to the FCA that:
- there will be a cap of $22.8m (£17.9m) on the total compensation paid to WDA customers;
- WDA will determine which customers have a valid claim and how much to pay them; and
- customers can’t go to the Ombudsman.
It expects to get a decision from the FCA before the end of February and has said that if the scheme is not approved it may consider a sale of the business or insolvency proceedings.
Curo’s end year results show that WDA’s underlying business in the UK has been growing well:
- gross revenue up from c £14m in Q4 2017 to c£20m a year later.
- active customers in good standing have increased from c 42,000 to c 50,000 over the same year.
Should the FCA agree to this?
The proposed SOA caps the amount of cash required for the Redress Claims for the SOA Creditors and, if implemented, the Company believes would firmly establish CTL as a leading market participant in the United Kingdom. Additionally, upon completion of the SOA, CTL will be positioned to capitalize on a large and attractive addressable market that has been experiencing major competitive disruptions, recently because of the Redress Claims affecting other high-cost short-term credit providers.
I think this amounts to saying:
A lot of other UK payday lenders are having big problems with paying refunds. Reducing and capping what we pay will make WDA safe so we can then take advantage of this and grab more of a very profitable market.
I don’t see how the FCA could think this is acceptable. It sets a very bad precedent for any authorised business that wants to walk away from major problems in its past and carry on trading.
And the payday loan market is crowded. The FCA’s recent figures show there are about 90 lenders. There can be no concerns here that a few more payday lenders going under will cause supply problems.
Is 23 million dollars a reasonable offer?
That seems very unlikely.
Curo’s results showed its complaints costs were $4m in Q3 and $4.6m in Q4 last year. But the Q4 figures must have been lower than they would otherwise have been because WDA seems to have been telling most people complaining that it needed more time to reach a decision, resulting in a large backlog of unresolved complaints.
Also for a long period WDA was telling customers who complained about loans that were over six years old that they could not be considered because the loans were “statute barred”. In September FOS issued guidance decisions saying that it could look at loans that were more than six years old.
Someone asked me last week how much I thought would be acceptable. I guessed that $100m should cover the refunds for previous lending, but at $50m I thought there would have to be a very careful examination of the number of cases currently at FOS, the number of cases in the internal WDA complaints, and the number of customers with potential complaints.
WDA must have told the FCA these numbers and how it has estimated the liabilities. At the moment it isn’t known if WDA is proposing to pay customers with complaints 20%, 50% or how much of the value of a refund they might expect at the moment.
Can WDA be trusted to assess complaints fairly?
WDA has refused to recognise just how bad its previous lending has been.
My article last week Wageday Advance – delaying complaints and in financial trouble? looked at how poor WDA lending has been over the years and, importantly, how it continues to have problems with its current lending. The links in that article to some Ombudsman decisions show how WDA has been refusing to give refunds on what appear to be clear cut cases and generally disputing the approach used by FOS.
This does not seem to me to be a situation where WDA can be trusted to determine who should get compensation and how much. Having an expert sign off on the methodology does not seem to me to be adequate either. There needs to be truly independent scrutiny from FOS and from the debt advice sector before any approach is agreed.
Until this is done, there must be a big question mark over the total redress calculations. If WDA is proposing an overly restrictive definition of valid complaints, how can the FCA determine if $23m – or any other number – is acceptable as a cap on the refunds?
Not acceptable to bar complaints going to FOS
I don’t think it’s reasonable to bar customers from taking complaints covered by the Scheme to FOS. If people are being offered a reasonable refund automatically, with no need to complain or any delays, then in practice few of them would want to bother to go to FOS to try to get an extra loan or two included in the refund process. But there will always be a few cases where an automated decision system does not produce a fair answer.