One of Britain’s biggest pawnbrokers has suspended its unsecured cash loans business and warned that it may have to pay compensation to customers as the City regulator reviews its operations.
H&T, which operates 254 pawnshops across the UK, said it is “working closely with the Financial Conduct Authority following a regulatory review of certain aspects and files of its high-cost short-term credit (‘HCSTC’) unsecured loans business … The group has ceased all HCSTC unsecured lending, at least temporarily, as it works through this review process.”
The announcement to the stock market sent shares in H&T crashing by nearly a quarter at one stage, but they pulled back to losses of about 15%. Until the announcement, H&T, a business valued at about £120m, had been one of the best-performing small shares on the AIM market over the last year.
H&T’s various business arms charge interest on an annualised basis of between 49.9% and 1,288%, and the announcement gives a rare insight into the scale of interest paid on what appear to be relatively small amounts lent.
The company said the review would cover six years of lending by H&T in the HCSTC market. It said the value of its loan portfolio over the period averaged £3m, but customer interest payments were £24m.
H&T said that without regulated lenders to go to, some people could be pushed into the arms of loan sharks to finance Christmas spending. Its chief executive, John Nichols, said: “The timing is not ideal, as the run-up to Christmas is a busy time for issuing short-term loans. It is also possible that one unintended consequence could be an increase in people going to unregulated lenders.”
The review follows a “Dear CEO” letter from the FCA in October, which warned lenders that they must make sure they properly check on a customer’s ability to repay before making loans. It added that if firms were non-compliant, they should pay redress and tell the regulator if the compensation might push them out of business.
The share price crash at H&T comes just weeks after the closure of rival pawnbrokers Albermarle & Bond. But H&T said its main, century-old, pawnbroking business was unaffected and it had the financial resources to pay any compensation that might arise from the review.
In its statement, H&T said: “In the light of the FCA and board’s review, should any redress be payable, H&T anticipates being able to fund this from its existing financial resources.”
But critics said the continuing regulatory crackdown on high-cost credit would drive many more firms out of business.
“The fact that customers have paid £24m in interest to H&T in the last few years is absolutely shocking,” said Peter Briffett of Wagestream, a company that works with employers to give employees early access to their pay.
“The FCA’s review into H&T comes hot on the heels of a decision by Albemarle & Bond to exit the sector, amid mounting signs the payday lending market’s business model is coming apart at the seams.”
