Module 5: Case Study

Payday loan company ordered to repay £34 million

So what impact can TCF ignorance cause to a business. Below is a case study, see if you can pick out the key statements that clearly show that TCF procedures/outcomes were not followed:

20th September 2016 – Source

The UK’s Financial Conduct Authority (FCA) has ordered payday lender CFO Lending to pay over £34 million to more than 97,000 customers in redress for unfair practices.

The redress consists of £31.9 million in written-off balances and £2.9 million in cash payments to customers, the FCA said.

The FCA discovered that CFO Lending had been treating customers unfairly since April 2009. Failings included the firm’s systems showing the wrong balances, so that some customers repaid more than they should, and the misuse of customers’ banking information to take payments without permission.

CFO Lending also made excessive use of continuous payment authorities to collect outstanding balances, including when it had reason to believe customers were in financial difficulties, the FCA said.

Customers in financial difficulties were not treated with “reasonable forbearance”, the FCA said. This included refusing reasonable repayment plans suggested by customers and their advisors. Customers were send threatening and misleading letters, texts and emails, and referred inaccurately to credit reference agencies.

CFO Lending also failed to assess the affordability for guarantor loans for its customers, the FCA found.

The company traded as CFO Lending, Payday First, Flexible First, Money Resolve, Paycfo, Payday Advance and Payday Credit, the FCA said.

Most of the firm’s customers had high-cost short-term credit loans, known as payday loans, while others had guarantor loans and some had both, the FCA said. CFO Lending will contact all affected customers by March 2017, the FCA said.

CFO Lending stopped offering new payday loans to customers in May 2014.

Financial services regulation expert Michael Ruck of Pinsent Masons, the law firm behind said: “The FCA’s recent action makes it clear that its focus on payday lending and other consumer credit activities continues to be high on the agenda for regulatory scrutiny. While the FCA’s requirements regarding treating customers fairly and the need to undertake affordability and suitability assessments have been in place for some time, many payday lending and consumer credit firms have found difficulties in understanding how, and to what extent, such requirements will be applied to them.”

“This action is a further example of the difference between the Office of Fair Trading approach and that of the FCA, including the use of the FCA’s significant powers to take action, enforce redress and write-off loan balances. One can only foresee the FCA continuing to take similar actions across a range of consumer credit firms in the next 12 months where it identifies failure to meet regulatory requirements.”

The FCA took over responsibility for consumer credit from the Office of Fair Trading (OFT) on 1 April 2014, backed with stronger powers to clamp down on poor practice than those that were available to its predecessor. Oversight of payday lending and debt management services have been a particular focus of its work, and its initial review of debt collection practices at these lenders found examples of “serious non-compliance and unfair practices” by a number of firms.

The FCA said in January that another payday loan company, CashEuroNet UK, would pay out £1.7 million in redress to almost 4,000 consumers who were loaned more than they were able to repay. CashEuroNet offers short-term credit to customers under the names Quick Quid and Pounds to Pocket.