Following the fall of Wonga in 2018, there was a huge gap left for other lenders to take the crown. It now appears that US lenders are emerging as big players despite customer complaints and high cost-credit clampdowns.
QuickQuid, WageDayAdvance and Sunny are all lending companies owned by American-listed firms Enova, Curo and Elevate Credit respectively. These have all made he strides in the UK lending market despite a rather heavy clampdown on high-cost credit by Britain’s financial regulator and a recent surge in customer complaints.
What happened to Wonga?
As you may be aware by now, Wonga was forced into administration in August of 2018 by a spike in complaints over their charges being excessive, with some interest loans topping a whopping 5,000%.
As the regulators of the industry, the Financial Conduct Authority (FCA) placed a cap on payday loan charges. This came into force when they took over the industry in 2015 and kept lenders from charging customers more in fees and interest than the amount which was borrowed. As a result, some lenders had to shut down and whilst Wonga tried to stay afloat, it did have to also shut down three years later.
Make Way for the American Lenders
With Wonga, the poster-child for instant payday loans now in administration, the decks have been cleared for US-owned competitors to swoop in and take over. Other casualties including CashGenie and The Money Shop. Wonga was always hailed as the king of the quick loan, providing its customers with money at high-rates within a matter of hours or even instantly – many competitors tried to emulate this model and fell of as a result too.
Enova, a Chicago based lender, which also operates Pounds to Pocket and On Stride, saw UK revenue jump 20 per cent to £29m or $36.6m. Likewise, Texas-based Elevate Credit operates in the UK under Sunny Loans saw its UK revenue jump 23 per cent to $32m, as new customer loans for Sunny rose 45 per cent to $23,671.
Curo, which is behind the UK’s WageDayAdvance, saw their revenue also jump to 27.1 per cent to $13.5m, meanwhile underlying earnings nearly halved from $8.1m to $4.2m. It was helped by a high percentage of new customers, which may have otherwise gone to Wonga were it still around.
Complaints and Compensation
Nevertheless, the New York Stock Exchange-listed firm has been hit by a surge of complaints and has therefore been weighing up whether or not they should ultimately exit the UK market. Curo said that costs have rocketed 77.6 per cent to $7.7m over the third quarter of 2018, when it paid $4m to cover the cost of resolving the complaints they were receiving. As a result, Curo stated:
“We do not believe that, given the scale of our UK operations, we can sustain claims at this level and may not be able to continue viable UK business operations,”
Enova and Elevate have also stated that they have had a spike in complaints and this has further posed a risk to their business dwellings in the UK market. Elevate told the Guardian that their UK brands are “different from Wonga”, going on to say that Sunny “has never charged fees, and imposed our own total cost cap even prior to the FCA rule introduced in 2015.”
It was believed by Elevate that many of the complaints against them were “without merit” and “reflect the use of abusive and deceptive tactics” by claims management companies (CMCs), which aim to pursue complaints on behalf of customers. In response, Sara Williams, a debt campaigner and author of the Debt Camel blog said The CMCs are not the root cause of the crisis for payday lenders,” adding that the real issue had been irresponsible lending decisions and inadequate affordability checks. “If the lenders want to reduce the number of cases going to the ombudsman and the resulting ombudsman fees, then they should do a better job of settling customers complaints directly.”