Stella Creasy, the Labour MP and payday loans campaigner, has called for an investigation into the Financial Conduct Authority’s regulation of Wonga and QuickQuid after the collapse of the two lenders.
Wonga went bust last year after it was brought down by a deluge of compensation claims from customers sold high-cost loans. Last month, QuickQuid’s parent, CashEuroNet UK, was placed in administration by its US owner after it refused to pay compensation claims, leaving more than 1 million customers facing financial uncertainty.
The FCA, the financial services industry watchdog, investigated Wonga in 2014 and forced it to write off 330,000 loans worth £220m and compensate 45,000 other customers. In 2015, the FCA ordered CashEuroNet to write off more than 2,500 loans and refund about 1,500 people at a cost of £1.7m.
In both cases the FCA installed a “skilled person” at the companies in order to overhaul processes and make sure the companies stuck to its rules. But Creasy said the claims that brought the lenders down indicated their bad lending practices continued and the measures had not worked.
Creasy has asked the Treasury minister John Glen and the FCA to release the skilled person’s reports and assessment of the FCA’s actions. Glen said it was not his job to tell the FCA what to do and Christopher Woolard, the FCA’s strategy director, did not address Creasy’s request in a follow-up letter.
Creasy said: “The regulator was supposed to be keeping an eye on these people and we are now seeing these companies collapse. This is the second major payday loan company that has gone bust and there is a very good case for an investigation into what is going on here. They [the FCA] can’t say they didn’t know the problem was coming.”
Borrowers from the companies faced being chased by third-party debt collectors, while customers mis-sold high-interest loans are likely to be left out of pocket because their compensation will not be paid, Creasy said. A QuickQuid customer borrowing £250 loan for three and a half months was charged interest equal to an annual percentage rate of 1,300%.
The Centre for Responsible Credit () thinktank said the failure of Wonga alone was severe enough to qualify as “regulatory failure”, triggering an investigation under the Financial Services Act.
The FCA states that a consumer loss of £30m is the minimum for triggering a public report and that £150m or more would be “significant for many types of consumers”. Losses to consumers from Wonga are about £400m, the CfRC said.
Damon Gibbons, CRC’s director, said: “It’s for the FCA to make a statement as to why they don’t consider the regulatory failure test has been met and to justify that decision.”
If the FCA concludes the payday lenders do not meet the financial threshold for regulatory failure, the Treasury has the power to order an investigation in the public interest, Gibbons said.
The FCA said it had clamped down on consumer credit since taking over regulation in 2014 and its actions had saved customers billions of pounds. “Where we’ve seen issues, we have intervened and will continue to do so,” it said.