The Money Shop has come the latest payday lender to go out of business with a potential 430 redundancies.
In a letter to staff the firm said: “The proposal to make collective redundancies is considered appropriate due to the poor financial performance of Instant Cash Loans Ltd (ICL).
“This is a result of the unprecedented number of customer complaints received by the business from claims management companies which relate to previous behaviours and conduct of the business towards its customers, pre FCA.”
No information has been given about consumers with outstanding loans having to continue making payments.
Many of the recent claims have been referred to the Financial Ombudsman Service (FOS) who have reported a record number of payday loan complaints in the last year.
Each complaint referred to FOS costs the company complained about £550 even before any compensation is ordered and it is the level of these costs which The Money Shop says has forced it to cease trading.
The firm, along with the rest of the payday loan industry, came under close scrutiny from the Financial Conduct Authority (FCA) when it took over responsibility for regulation of the sector in 2014 and started a clampdown on what had been called the Wild West of short term credit in Britain.
The following year the regulator found that consumers may have suffered as a result of The Money Shop’s affordability checks, debt collection practices and system errors and forced it to pay £15 million in compensation.
The watchdog went on to create new rules for the whole payday loan sector which forced firms to:
- Conduct comprehensive affordability checks on all borrowers to ensure they can afford the loan.
- Limit the number of loan roll-overs to two.
- Restrict the number of times a Continuous Payment Authority (CPA) can be used to two.
- Display clear risk warnings on all adverts and promotions, along with more information about debt advice.
The regulator also changed the price structure by:
- Reducing the maximum interest rate to 0.8% per day.
- Capping default fees at £15 to protect customers who struggled to pay back the loan and prevent them from getting further into debt.
- Capping the maximum total cost of a payday loan at 100% so customers never had to pay interest that exceeds the loan amount
In August last year, The Money Shop stopped offering short term cash loans altogether and focused on pawnbroking, foreign exchange and bought gold.
That decision has made the proposed closure more complex than previous casualties like Wonga and Wageday Advance with customers who have pawned items expressing concern about being able to recover their property.
But In a statement the firm said there would be no problem because all pledged or pawned items are ‘held securely at our central location’ which means they are unaffected even if the consumer’s local Money Shop has closed down.
The statement continued: “You can arrange a reclaim by calling 0121 726 1154 Monday to Friday between 9am and 5pm.
Once you have made the agreed redemption payment, we will write to you to confirm receipt and request you to surrender your original “Fixed Sum loan Agreement and Pawn Receipt” to us within 30 days, using a pre-paid envelope supplied.
“Subject to the receipt of the Agreement, we will post your pledge via Special Delivery Signed For to your home address.”
But the statement also added the warning: “If you do not call ICL within 14 days after the expiry date of your contract, your items will be sold by ICL.”