The UK’s largest payday lender is at risk of entering administration, a year after its rival Wonga collapsed due to a surge in complaints.
The US owner of CashEuroNet UK, which operates the QuickQuid and On Stride brands, is considering its options after confirming plans to exit its British operations.
It came after Chicago-based Enova failed to reach an agreement with UK regulators to reduce the number of customers it would have to compensate over historical loans.
Payday lenders are under strain because of a rise in compensation claims lodged by customers who believe they were mis-sold loans they could not afford. Similar issues triggered the collapse of the former industry leader Wonga in 2018 and The Money Shop in June.
Grant Thornton is poised to handle CashEuroNet UK’s wind-down if Enova decides to place the division into administration.
Enova’s chief executive, David Fisher, blamed the financial ombudsman, which settles disputes between lenders and customers, for moving the goalposts on its complaints process.
“Over the past year and a half, we have experienced a challenging and uncertain regulatory environment in the UK, despite the fact that the FCA [Financial Conduct Authority] reviewed and approved our business practices and affordability criteria in 2015. FOS, the financial ombudsman, has continued to move the goalposts with its complaints handling decisions, in effect setting ever-changing de-facto policies that in many instances was inconsistent with FCA guidelines,” Fisher said.
Fisher said the FCA and financial ombudsman failed to provide clarity on “the future state of complaints handling,” adding: “Despite our best efforts to come to a resolution, we were unable to find a path forward that provides us the clarity we need to continue investing in our UK business.
CashEuroNet UK accounts for up to 25% of the UK payday loans market, according to one industry insider. While CashEuroNet UK’s total customer numbers are not disclosed, its QuickQuid website claims to have served “1.4 million customers and counting”.
The payday sector has suffered amid political and regulatory pressure over its business model, which charges high interest rates for loans. A QuickQuid customer taking out a £250 loan for three and a half months would be charged interest rates equal to an annual percentage rate (APR) of 1,300%, according to an example on the lender’s website.
The company’s troubles, first reported by Sky News, places further pressure on the payday loans sector, which is still recovering from Wonga’s collapse. Wonga was pushed into administration after a spike in complaints over excessive charges on historical loans, that in some cases came with interest rates equal to an APR topping 5,000%.
A similar surge in complaints contributed to the collapse of the pawnbroker and payday lender The Money Shop, owned by Instant Cash Loans.
Payday lenders in the UK have struggled following new regulations introduced by the Financial Conduct Authority in 2014. It resulted in a cap on payday loans charges, which kept lenders from charging more in fees and interest than the amount borrowed, and also enforced affordability checks.
Those changes not only restricted lenders’ income, but resulted in a flurry of complaints by customers who said they could not afford the loans they were sold. The complaints were lodged with the Financial Ombudsman Service, which settles disputes between lenders and customers.
Sara Williams, a debt campaigner and author of the Debt Camel blog, said: “Wonga and the Instant Cash Loans group have already been brought down by the cost of paying payday loan refunds, now CashEuroNet looks set to go under as well.
“CashEuroNet has previously blamed the Financial Ombudsman for an overzealous approach to payday loan affordability complaints. But the regulator’s rules about affordability have remained broadly the same for more than 10 years.”.
A loan is only deemed affordable if a customer can repay it without getting into hardship, falling behind on bills or having to borrow again, she explained. “But too many CashEuroNet customers were left so short of money when they repaid a loan that they were forced to keep borrowing for months or even years. When the Financial Ombudsman says a customer was given unaffordable loans, the lender has to refund the interest they charged. So many QuickQuid customers are being refunded thousands of pounds,” said Williams.
Enova, the US-based parent of CashEuroNet UK, said last year that a rise in company complaints to the Financial Ombudsman Service could have a “negative effect” on its UK operations. It accused the ombudsman of taking a “very consumer-friendly approach to its complaint-handling process and dispute resolutions.”
In July this year, the company said a 19% rise in its operating and technology costs across the business was partly because of “ongoing expenses associated with customer complaints in the United Kingdom.” It also revealed that revenues across its UK operations suffered a 20% drop over the first half of 2019 to £55m.
