A pawnbroker is preparing to set aside £18 million in compensation for customers who were sold loans they could not afford to repay.
The move comes as the Money Shop prepares to wind itself up after struggling with an unprecedented number of customer complaints and poor financial performance.
The Money Shop, which is owned by Instant Cash Loans, is understood be in talks with the Financial Conduct Authority about setting up a fund for complainants, according to Sky News.
Instant Cash Loans, which also owns Payday Express and Payday UK, is writing to its two million customers to seek their approval for the scheme, which will enable them to apply for compensation if they have a valid complaint about the loans they were sold.
The value of the payouts will depend on the volume of complaints. The Money Shop was once one of the biggest high-cost credit suppliers in Britain, with 551 branches in 2014, when it was owned by Dollar Financial, an American corporation.
It was sold in 2017 and stopped offering payday loans last August after a regulatory crackdown. It now operates as a pawnbroker as well as buying gold and jewellery, selling foreign currencies and cashing cheques. As recently as June last year it had 233 shops but has sold some to Ramsdens, a rival pawnbroker.
In recent months the company has been inundated with complaints from claims management companies about historic loans. Each complaint submitted to the Financial Ombudsman Service costs the company £550 to process before any compensation is paid. The news comes less than a year after the collapse of Wonga, another payday loan group, which also buckled after sustained pressure from claims management companies.
The Financial Conduct Authority is understood to support arrangements for a compensation fund and creditors will vote on whether to approve the proposal. EY, the accountancy firm, and Freshfields, the law firm, are understood to be supervising the plan.
