Stella Creasy, the Labor politician and payday loan activist, has called for an investigation into the Financial Conduct Authority’s regulation of Wonga and QuickQuid after the two lenders collapsed.
Wonga went bankrupt last year after being bowled over by a deluge of compensation claims from customers who sold high-cost loans. Last month, QuickQuid’s parent company, CashEuroNet UK, was placed in administration by its American owner after refusing to pay compensation claims, leaving more than a million customers facing financial uncertainty.
The FCA, the watchdog for the financial services industry, investigated Wonga in 2014 and forced her to write off 330,000 loans worth £ 220 million and indemnify 45,000 other customers. In 2015, the FCA ordered CashEuroNet to cancel more than 2,500 loans and repay around 1,500 people at a cost of £ 1.7 million.
In both cases, the FCA has installed a “qualified person” in the companies to review the processes and ensure that the companies follow its rules. But Creasy said the claims that brought down the lenders indicated their bad lending practices continued and the measures had not worked.
Creasy asked Treasury Minister John Glen and the FCA to release the Qualified Person’s reports and the assessment of FCA’s actions. Glen said it was not his job to tell FCA what to do and Christopher Woolard, FCA’s chief strategy officer, did not respond to Creasy’s request in a follow-up letter.
Creasy said: “The regulator was supposed to keep an eye on these people and now we are seeing these businesses collapse. It is the second major payday loan company to go bankrupt and there are very good reasons for investigating what is going on here. They [the FCA] I can’t say they didn’t know the problem was going to happen.
Business borrowers have been hunted down by third-party debt collectors, while clients who mis-sold high-interest loans are at risk of being left behind because their compensation will not be paid, Creasy said. A QuickQuid customer borrowing a £ 250 loan for three and a half months was charged interest equivalent to an annual percentage rate of 1300%.
The think tank Center for Responsible Credit () has stated that the failure of Wonga on its own was serious enough to qualify as a “regulatory breach”, triggering an investigation under the Financial Services Act.
The FCA says a loss of £ 30million is the minimum to trigger a public report and that £ 150million or more would be ‘important to many types of consumers’. Losses to Wonga consumers are around £ 400million, the CfRC said.