Trade group cautions that consumers are unable to access credit due to pressure from claims companies

A ramping up of compensation claims has resulted in more and more consumers turning to family and friends for loans, as has slashing the number of credit companies available, according to the Consumer Credit Trade Association (CCTA). Management companies are to blame for the raised number of claims, and cautioned consumers are finding it tougher to access credit from trustworthy sources, claims the CCTA.

Wonga, the payday lender, went bust last month, due to a hasty pile-up of claims for compensation from borrowers, who said they were given unaffordable loans, causing them to be driven into administration. Wonga blamed CMCs for a recent surge in compensation requests, which caused the break. Chief executive of the CCTA Greg Stevens, said many CMCs were making “vexatious and fraudulent” claims.

The Financial Ombudsman Service’s rules states compensation can only be appealed up to six years from the event the consumer is complaining about, or three years from when the consumer knew, or could reasonably have known, they had cause to complain. However, lenders are being “carpet-bombed by CMCs”, many of which fall outside the six-year limit told by Mr Stevens. Also, regardless of whether the claim is legitimate or not, lenders must pay £550 for every complaint taken on the FOS, with Mr Stevens adding “It’s not a fair playing field”.

One of the major effects of a more confined market has been more people turning to family and friends to borrow cash. Mr Stevens cautioned this may become very challenging, with interest rates increasing and prices set to rise. Steven stating, “Friends and family are taking the burden but you don’t know how long they will be able to do so.”

Mr Stevens said the UK could be headed for another downturn like it did with the Lehman Brothers. It’s been 10 years since the downfall of Lehman Brothers, which was considered as the beginning of the last financial crisis. Stevens said: “We might be close to another cycle where we see another recession or mini-recession,” Also stating, “Prices will rise if the Sainsbury’s/Asda deal goes through, and they’re likely to go up because of Brexit. There’s more pressure coming.” Mr Stevens requested for more stability between regulation of the consumer credit market and the CMC industry. “We are just looking for fair play.”

Chief executive of the Alliance of Claims Companies Simon Evans rejected the allegation that CMCs aided unfounded claims. With Evans stating “Let me be clear, for CMCs operating with best practice, and all of our members abide by our guiding principles to do so, it makes no economic sense to present spurious or speculative claims for consumers so, clearly, the rise in these claims from consumers via  third parties such as our members is being driven by the increased knowledge of the poor and borderline fraudulent lending practices of payday lenders,”.  Adding, “It is quite disingenuous of payday lenders to point the finger of blame at claims management companies as the fallout from the Wonga collapse continues.”

Evans mentioned the latest complaints data from the FOS, which exhibited an increase in claims against payday lenders, with 69% of cases being upheld in favour of consumers. Evans said: “What does this tell you? Consumers were treated badly by these companies and, like other financial institutions, they are now paying the price for their previous poor practices. That is not the fault of CMCs, it lies squarely at the management of the companies themselves who must have hoped never to have been brought to account”.