Claims Management Firms Drive Increase in Complaints from Payday Lenders

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Elevate Credit Inc Updates

The boss of one of the UK’s largest short-term lenders predicts that an increase in customer complaints driven by claims management companies could put several lenders out of business, as new data showed that complaints they tripled in the second quarter.

The Financial Ombudsman Service received 10,979 new complaints about payday loans between April and June, up from just 3,126 in the same period last year.

The figures come just weeks after Wonga, the best-known payday lender, blamed an unexpected spike in complaints for its £ 10 million emergency capital raising.

Scott Greever, managing director of the international division of Elevate Credit, which is publicly traded in the United States, said: “It could really change the face of who offers services. Our company is doing well, but we are probably a bit anomalous – these kinds of CMC actions are very likely to put some of our competitors out of business. “

Claims management companies grew tremendously by helping consumers recover money from under-sold payment protection insurance. So far there have been almost £ 32bn in PPI compensation payments. However, PPI complaints will cease after a deadline next August and CMCs are turning their attention to other sources of revenue.

The UK short-term credit market has shrunk significantly since the Financial Conduct Authority introduced a cap on interest and fee charges in 2015. The total value of short-term loans contracted fell from 2.5 billion euros. pounds in 2013 to just over 1 billion in 2016, according to the FCA.

Greever said that Elevate, which operates under the Sunny brand in the UK, said it was not significantly affected because its interest rates were lower than rivals and it did not charge additional fees. However, the reforms wiped out the profits of groups like Wonga, which lost £ 146 million between 2015 and 2016.

Wonga blamed claims management companies for the recent spike in complaints, and a spokesperson for FOS said CMC was behind around two-thirds of industry-wide complaints during the three months through June.

The figure was even higher in some individual companies. They accounted for 74 percent of all complaints about Sunny in the first half of 2018.

A senior figure from another lender said several companies had raised concerns about CMC activity to politicians and the FOS at a recent parliamentary meeting.

Elevate added that the CMC’s “dispersal approach” ran the risk of distracting staff and the FOS from genuine complaints, and raised concerns about how these companies were sharing personal data in light of new data protection rules. Elevate said it had recently received 148 complaints from a CMC in one day, but only 29 of those on the list had been Elevate customers.

The FCA will take over regulation of CMCs starting next year and has proposed stricter rules on how they deal with customers.

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