Subprime lenders battle for survival as regulator takes harder line

For UK subprime lenders, this should be a boom.

The number of potential borrowers with inadequate credit information continues to grow as the unemployment rate is expected to rise sharply after the pandemic. However, the sector, which has exploded since the last financial crisis, is suddenly fighting for survival, leaving few companies to meet the growing demand.

Amigo Loans lends to uncredited borrowers when friends and family guarantee repayment Considering operation This week, we failed to get approval for a bailout scheme to resolve a large number of customer complaints.

Earlier this month, rival Provident Financial said: Close Started mortgage business for the first time in over 140 years.

Subprime lenders have been struggling with a surge in customer complaints for years, but things have gotten worse in recent months, with management saying the FSA regulators are against the sector. I’m worried about it.

“It’s a very difficult time,” said one industry executive, subject to anonymity. “The high cost end of the market has been reviewed by the FCA over the last few years, not to mention in some respects …[but]Over the last few months, attitudes and tones have clearly changed. “

The FCA intervened in Amigo’s proceedings, opposed the approval of a bailout program that limits the lender’s potential liability for past complaints, and indicated that Provident would oppose another scheme under development.

“We are realistic about the amount a company can pay as compensation as a result of consumer complaints. [repeat lending]”Sheldon Mills, FCA’s new executive director of consumer and competition, said. “But we are not so realistic that we think shareholders should enjoy most of their profits and consumers should receive little of them.”

Some industry insiders say they have noticed changes in the FCA since the appointment of a new CEO and the arrival of Mills. One suggested that he wanted to see the new team later take a hard line. Being criticized Omissions during scandals such as London Capital & Finance and the collapse of Neil Woodford’s investment empire.

Mills told the Financial Times that his family relied on high credit grants when he was a kid, but the regulator’s approach was “consistent,” “sustainable and costly.” We are absolutely committed to ensuring our credit. “

He said the FCA “needs to work more closely and put more effort on the supply side to make the business model work.”

But he added, “There’s more to it.” [firms] You can work wisely to serve that customer base and not be liable for huge amounts of liability. ”

Sheldon Mills, the new executive director of FCA’s consumer and competition, said:

Regulators have so far dismissed allegations that closing mainstream subprime lenders would drive vulnerable consumers to usury.

A report released last summer warning about the negative effects of repeated lending to the same customers also points to an important turning point in strengthening the FCA’s attitude towards high-cost lenders.

The plight of subprime lenders has received little sympathy from activists. celebrated The end of business, often referred to as “legal usury.” Wonga, which went bankrupt in 2018, was famous for encouraging customers to take out loans with interest rates as high as 5,800% to fund their overseas travel.

At its peak, Amigo dominated nearly 90% of the guarantor lending market, while Provident was the largest mortgage provider with a market share of around 30%. Overall, the number of active high-cost short-term lenders in the UK fell by almost two-thirds between 2016 and the third quarter of 2020, while loan size was 85, according to FCA statistics. % Decreased.

Management states that current difficulties are often exacerbated by specialized claims management companies that file large numbers of fake claims.

Paul Smith, CEO of Moses Club, the UK’s largest front door lender after the withdrawal of Provident, said the company did not suffer as much as some rivals, but “we are all this. I’m having a problem. 50% of the complaints we receive haven’t even addressed our customers. “

Between 2017 and 2019, the number of complaints filed with the Financial Ombudsman Services for guarantor loans surged from less than 30 to 303 each quarter. By the final quarter of 2020, it had surged to more than 10,000. All complaints processed after the first 25 times of each year, even if rejected, will cost the lender £ 750.

The percentage of complaints supported by the ombudsman has also increased significantly. According to FOS data, the approval rating for guarantor loan complaints rarely exceeded 30% until 2019.

The FOS said the approach for assessing complaints was “in line with long-standing industry rules and regulations” and “closely linked” with a recent FCA report on repetitive lending.

Mills was concerned about reporting false complaints and said the FCA, which was responsible for regulating most CMCs in 2019, would do more to improve standards in this sector.

Subprime lenders battle for survival as regulator takes harder line Source link Subprime lenders battle for survival as regulator takes harder line

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