A startup founder has called for more transparency in the fast-moving space of loan reclaims. In recent years, thousands of people who took out payday loans, guarantor loans and other high cost loans have been able to claim thousands of pounds on former loans that they were unable to afford.
Whilst UK lenders are required to carry out sufficient checks by the Financial Conduct Authority, there are a number of customers who slip through the net due to lack of employment, income, poor credit status or with a huge backlog of debt already.
Subsequently, if a customer has taken out a high cost loan and struggled to repay, needed further loans, fallen into arrears and is paying additional fees, they would be a strong candidate to receive a hefty compensation.
For any UK lender, this is an expensive process. Not only are they potentially refunding the customer’s entire loan, interest and some compensation on top, any complaints that are investigated by the Financial Ombudsman hold a £500 administration fee, regardless of whether the claim is successful or not.
This huge wave of compensation claims in the loans industry has seen enormous casualties, including the administration of household names such as The Money Shop, Wonga and QuickQuid in recent years.
More recently, Amigo Loans of the guarantor space has been in court with the Financial Conduct Authority trying to avoid insolvency by offering a 5% to 10% redress scheme to former customers with a claim. Whilst the court case continues, it is unlikely that Amigo will be able to proceed with paying such a small amount.
One startup founder, Dan Kettle, of loans connection service Pheabs, has raised his concerns.
“I feel we may have an imperfect market at the moment in the loans industry,” he explains.
“On the one hand, anyone can legally set up a loans company and offer loans, but any customer can also request a refund and receive compensation on top and the uphold rates are very high. Thus, creating a very difficult environment to operate in.”
“At this rate, we have lender after lender falling to administration and this is alarming, especially when short term loans act as a key anti-poverty measure. Without high street lenders, where else will people go if they need to borrow a few hundred pounds?”
“This certainly calls for more transparency in the industry, in terms of what criteria you can and cannot lend to – and this will create a much safer and scalable business model for lenders and their customers.”