Wonga’s recent collapse into administration has been blamed on a sharp rise in payday loan claims, causing concern for many payday loan companies.
CashEuroNet UK is now the largest payday loan company in the country, lending under the brands QuickQuid and Pounds to Pocket. In the first half of the year, it reported spending more money on compensation claims than it made in profits.
The rapid rise in payday loan claims comes at a time when PPI claims are finally coming to an end. The Financial Conduct Authority (FCA) has set 29th August 2019 as the cut-off date for consumers to contact their bank regarding claims. The banks are busy at the moment dealing with all those wishing to process their claims before August next year, and it’s highly likely lenders will remain busy over the next ten months, after which they can finally take a step back and breathe. To date, the banks have collectively paid over £32 billion to consumers for mis-sold PPI.
As PPI claims draw to a close, this could be just the start of payday loan claims — a change that could cause a huge shift in the claims management market.
A Change for Claims Companies?
The scale of the mis-sold PPI scandal caused many new PPI claims companies to emerge. Unfortunately for consumers, some of these companies were less trustworthy than others. Consumers found themselves bombarded with cold calls, text messages and large upfront fees, which were never returned. This gave PPI companies a bad reputation, despite some being trustworthy and charging customers low fees.
New regulations from the FCA and an interim fee cap mean the remaining PPI claim companies — many businesses were severely affected after having to take huge fee drops — are operating more fairly and giving consumers a transparent view of their claim. In April 2019, just four months before the deadline, the FCA will be taking over full authorisation and regulation of these companies.
With less than a year until the deadline, PPI claim companies are likely to be turning their attention to the next claims sector to capitalise on. With the recent collapse of Wonga and the increasing attention on payday loans, this could offer a viable alternative for claims management companies to branch into.
Yaakov Smith, director of Logican, provides claims management software for companies. He believes that many PPI companies will strategically turn to payday claims as an alternative to PPI. Some of these companies may even start doing this before the deadline to build their reputation for this new type of claim.
Is There a Big Enough Market for Payday Loan Claims?
Despite having to pay a company to do the legwork on their behalf, many consumers choose to use claims companies. With PPI, some older cases can be complex and people no longer have the paperwork, making a claims company — which can find all evidence and handle the claim on a consumer’s behalf — an appealing choice. Others don’t want to deal with the communication from the bank. The newly imposed interim fee cap means consumers now receive a fairer deal when working with a PPI claims company.
Much like people don’t like dealing with banks, consumers wishing to make a payday loan claim may not relish dealing with the lender, meaning there are likely to be plenty of individuals willing to use a claims company. Despite the collapse of Wonga, it’s believed that many consumers will continue to use payday loan companies, as debt continues to rise. If people continue to turn to these companies in times of need, but loans are not sold correctly, we will only experience a rise in payday loan claims.
Claims management software enables such companies to handle a large volume of claims, making the day-to-day tasks of claims companies significantly easier. It enables these businesses to chase claims quickly, and automatically update clients with the progress of their claim.
Despite that after August 2019, PPI claims will no longer be able to be made, this is likely not the end of claims companies. Stricter rules may be enforced by the FCA, but this will only benefit the reputation of the industry, leaving a small handful of companies that genuinely do good work and help their clients with claims — PPI, payday loan or otherwise.