Claims management firms seeking the next big money after the PPI scandal have been accused of bombarding the much-criticized payday lending industry with complaints that are often spurious and sometimes unbeknownst to borrowers.
In some cases, claims could breach strict data protection laws, while success fees charged by claim companies threaten to add financial pressure on people who have used payday loans.
The payday loan industry has been heavily criticized by politicians, debt activists and regulators for charging exorbitant 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 hurting some of the most vulnerable customers. from the United Kingdom.
The Consumer Finance Association (CFA), an industry body in the payday lending industry, said it has seen “worrying tactics” in the claims industry. This included poor quality complaints, data protection issues and complaints filed without permission.
A CFA spokeswoman said a number of lenders had received more than 1,000 complaints from a single CMC in 24 hours in a bid to “inundate lenders with complaints”.
The vast majority of complaints against payday lenders are made on affordability grounds, following a 2014 industry crackdown by the Financial Conduct Authority.
CMCs have already earned billions of pounds from claims for mis-selling 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 seek their next source of profit.
In the last six months of 2018, CMCs sent more than 2,500 complaints to Elevate, the U.S. owner of 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 also received 21 CMC complaints from customers who were later found to be “unaware that a complaint had been filed, or that a lawsuit had been filed.” [against a payday lender] had been undertaken” on their behalf. The CMCs lodged 204 complaints regarding cases that had already been settled.
One CMC, Charterhouse Claims, reportedly submitted 1,130 claims in the space of three days last month, mostly in the form of model complaints. Of those, 259 were not for a funded loan, Elevate said. Richard Metcalfe, director of Charterhouse Claims, said the company carried out “a very detailed analysis of each client”, and said any erroneous claims were made due to incorrect client information.
PayDayRefunds reportedly submitted 630 claims in three days in April, many of which had authorization more than six months old, suggesting they sat on claims before submitting them en masse. The company did not respond to requests for comment.
The chief executives of two other payday lenders said they discovered a pattern of questionable behavior by CMCs, some of which had been reported to regulators.
Elevate also said it has seen unusual behavior from companies using new parts of the General Data Protection Regulation (GDPR) to send data subject access requests (DSARs) on behalf of their customers. DSARs allow people to access all the data a company has on them, but Elevate believes some CMCs are making the requests without their customers’ knowledge in an attempt to obtain valuable private data that can then be used for profit.
Elevate did not name the companies requesting data 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 that another small lender received 500 DSAR in a single day, while another lender received around 250 DSAR in an hour.
Although CMCs can help people recover money they otherwise would not have earned, debt management charities and consumer advice centers advise people to avoid costs of CMCs by filing complaints themselves. CMCs often charge their clients a third or more of the value of any successful claim. For example, PayDayRefunds charges £180 in fees on a £500 claim.
The damage caused may be compounded for customers with multiple loans from a single provider. Money successfully claimed can legally be returned as a reduction of the outstanding amount owed to the lender. However, CMCs often seek their cash fees directly from the plaintiff, which means they can be sued by another creditor.
For lenders, a large volume of uncontrolled complaints – legitimate or not – poses a serious financial threat. Wonga, the payday lender that has become synonymous with sky-high interest rates and controversial advertising campaigns, was forced into administration in August after the volume of complaints – and related costs of £550 per complaint referred to the Financial Ombudsman Service – meant it was no longer financially viable.
Sunny is another payday lender that has come under fire for charging consumers high fees. It advertises an APR of 1,281%, which means a customer can end up paying back almost double what they borrowed.