Tiny payouts for payday loan victims

Thousands of payday loan mis-selling victims have been shocked to find they will be getting less than 6% of the compensation they are owed.

Payday lender WageDay Advance went into administration in February 2019 after being hit with a massive number of claims for mis-selling.

Assets

As the company collapsed, the issue of compensation was passed to the administrators whose job is to work out how much the assets of the company are worth and to pay out anyone who is owed money.

Anyone who was mis-sold a loan became one of thousands of unsecured creditors who joined secured creditors like utilities companies and major suppliers who were all owed money.

Payments are made in a strict order of who gets money first and once all calculations have been completed the administrators announce a final percentage dividend.

Tiny fraction

In this case more than 100,000 payday loan claimants have been told they will each receive 5.68p in the £ – a tiny fraction of the full amount of their redress.

Typical of the claimants was Ms Marie Ellis who was told her claim had been successful and that she should receive compensation of £1,727. Now she will receive just £98.

Middle ranking

WageDay Advance were a middle ranking payday lender in the UK, owned by Curo Transatlantic Limited and in 2017 won an industry award after being named best short-term loan provider.

But in common with other firms, like market leader Wonga, it had mis-sold thousands of loans to its customers who wouldn’t afford to pay them back, had loans rolled over or had multiple loans with other providers.

256,000

When those customers started to make claims the firm realised it could not afford to pay the compensation they were due and went into administration.

Once the process had started administrators KPMG sent out 256,000 emails inviting them to make a claim and just over 100,000 replied.

The redress will now be paid directly into their bank accounts.

Wonga

The WageDay collapsed closely mirrors the failure of Wonga – the payday market leader – which also went into administration after being swamped by mis-selling claims.

In Wonga’s case 358,000 claimants were owed a total of £460 million, but administrators eventually calculated they would only receive 4.3p in the £ and they ended up sharing less then £23 million.

Let down twice

Debt expert Sara Williams said: “WageDay Advance customers have been let down twice by the UK regulators. First WageDay Advance was allowed to carry on giving loans without proper affordability checks for years.

“Now they will receive less than 6% of the refund they should have had. The Financial Conduct Authority (FCA) should extend the Financial Services Compensation Scheme (FSCS) so it helps customers in this situation get their full compensation.”

Lifeboat fund

The FSCS is known as a lifeboat fund or a fund of last resort for the Britain’s finance industry.

It is empowered to pay compensation to claimants of firms which have gone out of business and can pay back 90% of the amount owed.

But at the moment its terms of reference do not cover payday lenders.