Compensation claims management firms looking for the next big earner after the PPI scandal have been accused of bombarding the much-criticised payday lending sector with complaints that are often spurious and sometimes without the knowledge of borrowers.
In some cases the claims could breach strict data protection laws, while success fees charged by the claims companies threaten to add to the financial pressure on people who used payday loans.
The payday loan industry has come under heavy fire from politicians, debt campaigners and regulators for charging extortionate interest on short-term loans.
Yet while claims management companies (CMCs) portray themselves as consumer champions helping to fight payday lenders, many also charge high fees and have questionable business practices – often affecting some of the UK’s most vulnerable customers.
The Consumer Finance Association (CFA), an industry body for the payday loans sector, said it had seen “worrying tactics” across the claims industry. That included poor quality complaints, data protection issues and complaints made without permission.
A CFA spokeswoman said a number of lenders have received more than 1,000 complaints from a single CMC in a 24-hour period in an attempt to “flood lenders with complaints”.
The vast majority of the complaints against payday lenders are brought on the grounds of affordability, following a 2014 clampdown on the sector by the Financial Conduct Authority.
CMCs have already made billions of pounds from compensation claims over the mis-selling of payment protection insurance. With a deadline for final PPI claims coming in August,CMCs appear to be targeting payday lenders with a high volume of claims as the former look for their next source of profits.
In the last six months of 2018 CMCs sent more than 2,500 complaints to Elevate, the US owner of the payday lender Sunny, from people who are not Elevate customers, according to data shared with the Guardian. Those complaints included personal information, in some cases including a person’s employer and bank details, Elevate said.
Elevate said it has also received 21 complaints from one CMC from customers who were subsequently found to be “unaware a complaint had been raised, or that court action [against a payday lender] had been undertaken” in their name. CMCs made 204 complaints about cases which had already been settled.
One CMC, Charterhouse Claims, allegedly submitted 1,130 claims in the space of three days last month, mainly in the form of template complaints. Of those, 259 did not relate to a funded loan, Elevate said. Richard Metcalfe, a director at Charterhouse Claims, said the company conducted “a very detailed analysis of every client”, and said any erroneous claims were made because of incorrect information from the client.
PayDayRefunds allegedly submitted 630 claims in three days in April, many of which had permission that was more than six months old – suggesting they sat on claims before submitting in bulk. The company did not respond to requests for comment.
The chief executives of two other payday lenders said they had found a pattern of questionable behaviour by CMCs, some of which they had reported to regulators.
Elevate also said it had seen patterns of unusual behaviour by companies using new parts of the General Data Protection Regulation (GDPR) to send data subject access requests (DSAR) on behalf of their customers. DSARs entitle people to access all of the data a company holds on them, but Elevate believes some CMCs are making the requests without the knowledge of their clients in an attempt to gain valuable private data which can then be used for profit.
Elevate did not name the companies making data requests without consent. Charterhouse said it was not one of the companies. PaydayRefunds did not respond to requests for comment.
In 2018, Elevate received 4,185 DSARs. CFA figures showed another small lender received 500 DSARs in a single day, while a different lender received about 250 DSARs in one hour.
Although CMCs can help people reclaim money they would not have otherwise gained, debt management charities and consumer advice centres recommend people avoid CMCs’ fees by making complaints themselves. CMCs often charge their customers a third or more of the value of any successful claim. For instance, PayDayRefunds charges £180 in fees on a £500 claim.
The damage done can be compounded for customers with multiple loans with one provider. Money successfully claimed back can legally be returned in the form of a reduction in the remaining amount of money still owed to the lender. However, CMCs will often request their fee in cash directly from the claimant, meaning they can be pursued by yet another creditor.
For the lenders, a large volume of complaints without checks – whether legitimate or not – represent a serious financial threat. Wonga, the payday lender which became a byword for sky-high interest rates and controversial advertising campaigns, was forced into administration in August after the volume of complaints – and the related £550 fee per complaint referred to the Financial Ombudsman Service – meant it was no longer financially viable.
Sunny is another of the payday lenders which has been criticised for charging high fees to consumers. It advertises a representative annual percentage rate of 1,281%, meaning a customer can end up paying back almost double what they borrowed.
