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The Jekyll and Hyde claims industry!

Last week the Financial Ombudsman Service published the latest complaint figures for April, May and June 2018 and reported that after PPI, payday loans became the second most complained about product, with 10,979 new cases being reported in that period. Compared to the same quarter last year when 3,126 cases were reported this does seem a significant increase although interestingly the uphold rate fell from 68% to 56% during the quarter.[1] So 44% of the claims are at best spurious and at worst bogus.


So what has caused this massive spike in payday loan complaints, despite a cap on the industry in 2014? If you ask some of the lenders they point to the claims management companies whose PPI cash cow is due to come to an end next year so many CMC’s are changing direction and looking at historical payday loan customers as their next opportunity. This is potentially reinforced by a FOS spokesperson comments who noted CMC’s were behind two thirds of industry wide complaints for the three months up to June.[2]


The weekend’s news that Wonga are ‘on the brink of collapse[3] follows details of a recent £10mn rescue package for the beleaguered company. The bail-out was reported to be in response to a warning by Tara Kneafsey‎, the lender's Chief Executive, who advised directors that an increase in the volume of complaints about loans made before the 2015 cap had triggered a large rise in compensation payouts “driven mainly by claims management company activity”.[4]


This sentiment was also echoed last week in the Financial Times article, “Claims management companies drive rise in payday lender complaints”[5] where Scott Greever of Elevate Credit who trade as the Sunny loan product spoke about how the actions of CMC’s are very likely to put some competitors out of business. He criticized the ‘scattergun approach’ used by CMC’s and reported how Elevate Credit had received 148 complaints from one CMC in one day but only 29 had been Elevate customers. That’s 80% of the claims being bogus.


This would suggest some dubious CMC’s who are submitting claims are either failing to carry out enough due diligence or intentionally submitting false claims in the hope they slip through the net. And while a large organisation like Elevate may have the resource to scrutinise every claim, spare a thought for the SME lender who faces a £550 fee each time a CMC refers a claim to FOS, regardless of its authenticity, and whether it is upheld or not.


So what does the claims management industry have to say? Well, according to Vincent Vernon of Payday Refunds in an article in the Daily Mirror, [6]his company are handling 32,000 complaints and lenders such as Wonga are ‘dragging their heels’ over paying out to customers who suffered as a result of historical irresponsible lending. [7]Payday Refunds has written to several lenders to advise them of impending legal action as they have so far failed to disclose customer information to the company.


Mr Vernon criticizes the lenders for ‘preying on the vulnerable in society’ and believes there are potentially 1 million payday loan customers who could be due compensation as and has written to several lenders to advise them of impending legal action as they have so far failed to disclose customer information.


The face of Jekyll perhaps? What the Daily Mail article which includes the interview with Mr Vernon fails to mention is the fee charged by Payday Refunds to customers for their service. According to their webpage, if a customer was awarded £500 they would only receive £320 meaning a hefty fee! Payday Refunds is a trading name of Direct Financial Claims Limited (formerly Empires Services Ltd) which is registered with the Claims Management Regulator under CRM42084 but with conditions attached. This includes a requirement to keep, and provide to the Regulator on request, recording of all marketing calls made by the business or any third party on its behalf. Each recording must be retained for a period of no less than six months after the call was made.[8]


It also transpires that Mr Vernon’s co-director at Direct Financial Claims Ltd, Carolina Costa who was appointed along with Vincenzo Vernon in April this year[9] also went onto form a new company, Easy Strike Off Ltd[10] the following month and of which she is sole director. According to the Companies House website, the incorporation address is listed in London but the initial shareholding page details Carolina Costa at a small residential address in Lincoln[11].


What is the relevance of this you may wonder? Well, the same Lincoln address is also listed as the registered office address of a company called LeadExpress Ltd[12] which dissolved in 2014. The sole director of this company was a Mark Kennedy who was also a director of Secure My Money Ltd – a consumer credit broker where he played an integral role.


Secure My Money Ltd was investigated by the Financial Conduct Authority[13] for misleading customers, an action which culminated in Mr Kennedy’s disqualification for 8 years as the firm was found guilty of taking fees of over £7.2 million from approximately 124,000 online customers by duping them into believing they had been approved for short term loans.


The Financial Conduct Authority are due to assume regulation for the claims management industry next year so will hopefully address the issue of false claims and put an end to the use of template complaints letters which have not received any fact-checking, along with cases involving customers who do not even know a claim is being made on their behalf. Until such a clean-up operation takes place, the industry will remain tainted so consumers and firms will be unaware if they are dealing with a Jekyll or Hyde.

[1] http://www.financial-ombudsman.org.uk/publications/ombudsman-news/145/145-first-quarter-statistics.html

[2] https://www.ft.com/content/886c2406-a61e-11e8-8ecf-a7ae1beff35b

[3] https://news.sky.com/story/wonga-on-brink-of-collapse-after-customer-compensation-claims-deluge-11482720

[4] https://news.sky.com/story/10m-cash-call-rescues-payday-lender-wonga-from-insolvency-11460332

[5] https://www.ft.com/content/886c2406-a61e-11e8-8ecf-a7ae1beff35b

[6] https://www.mirror.co.uk/news/us-news/payday-loan-compensation-could-due-13059081

[7] http://www.dailymail.co.uk/news/article-6047251/US-based-payday-loan-giants-face-legal-action-UK.html

[8] https://www.claimsregulation.gov.uk/details.aspx/42084/Direct_Financial_Claims_Limited/?search=simple&category=CRM&text=CRM42084&sectors=&statuses=&dates=&startdate=00010101&enddate=99991231

[9] https://beta.companieshouse.gov.uk/company/09659598/officers

[10] https://beta.companieshouse.gov.uk/company/11387648

[11] https://beta.companieshouse.gov.uk/company/11387648/filing-history

[12] https://beta.companieshouse.gov.uk/company/08539761

[13] https://www.fca.org.uk/news/press-releases/four-former-directors-online-consumer-credit-broker-banned-misleading-customers

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