The troubled payday loan lender The Money Shop is in the process of ring fencing a huge compensation pot with a view to paying compensation to over two million of its customers. It brings back memories of the collapse of the big payday loan lender Wonga in 2018. The compensation figure could be set at a whopping £18 million in total, highlighting exactly how in trouble the company is.
It is interesting to see the impact that regulatory changes and the tightening up of the industry has had on the big players in the sector, especially when you consider the new wave of payday loan companies with an honest, transparent, and simple approach that is a world away from the first phase of payday loan services over a decade or so ago.
The compensation for The Money Shop specifically is linked to a large number of complaints that have been received regarding affordability, fuelled by claims management companies. The company informed its employees recently that it was no longer viable to continue trading due to the large number of customer complaints about historic problems with the company. It has since been announced that the company made significant losses of over £87 million for the year up to June 2018, a level that is unsustainable, especially in light of the large quantity of customer complaints and claims for compensation.
Instant Cash Loans (ICL) owns The Money Shop, as well as Payday UK and Payday Express, and has started the process of putting in place a scheme of arrangement where payments can be awarded to customers with legitimate complaints against one of those payday loan companies. The process is court sanctioned, and although ICL ceased offering payday loans and other short-term credit services last year, it has been deluged with complaints since then≥
This type of news is a sure sign of how the payday loan sector continue to evolve and change, especially in response to the FCA and regulatory changes that have been aimed at tightening up levels of transparency and ensuring that the customer experience is one of honest financial services and not one where the borrower is potentially placed in greater financial risk as a result of borrowing money from a short-term loan lending service. It will be interesting to see how this news continues to shape the industry for the better over the coming months and years.
Always conduct thorough and extensive research before committing to borrowing money from a payday loan or other short-term loan lending service. The industry continues to improve, and although the big hitters such as Wonga and The Money Shop have committed to awarding compensation due to previous misdeeds, this does help to improve the process and the levels of customer satisfaction within the industry. The more the FCA and the general public do to call out bad behaviour within the payday loan sector, the higher the quality and the customer service that will be achievable through the responsible lenders that do exist, and do offer a transparent service that helps customers, rather than hinders them.