Dollar Financial ordered to repay £15.4m to customers | Payday loans

Britain’s second biggest payday lender has been ordered to refund £15.4m to 147,000 customers after regulators found it was lending more to borrowers than they could afford to repay.

The Money Shop and other brands run by Dollar Financial UK – Payday UK, Payday Express and Ladder Loans – handed out short-term loans charging interest rates as high as 2,962%.

But the Financial Conduct Authority has ordered the company to make cash refunds or reduce balances owed after it found many borrowers were in no position to repay the money and should not have been given the loans.

It comes one year after Wonga was forced to write off £220m of loans to 375,000 borrowers who it admitted should never have been given loans.

Dollar will hand cash back to 65,000 customers, and cut the balanced owed by a further 67,000 borrowers. A total of 15,000 will receive both cash refunds and reduced balances.

The action follows an investigation by the Financial Conduct Authority that began in July 2014, when it sent in a skilled person to check if Dollar was treating customers fairly and if they could afford to repay the loans offered. It came after an initial check uncovered a number of rule breaches by Dollar.

“The review revealed that many customers were lent more than they could afford to repay. The firm has since agreed to make a number of changes to its lending criteria in order to meet the FCA’s requirements for high-cost short-term lenders,” said the regulator.

The Money Shop has since cut its interest rate to a “representative” 743%, although Payday UK still charges 1,192%.

Dollar Financial UK chief executive, Stuart Howard, said: “I accept the findings of the review and apologise to anyone who may have suffered difficulties as a result. It is proper that we put things right where they have gone wrong and I have gone further than the review in reforming the way our business operates to reflect the company aim of being the most responsible lender in its market place.”

Critics welcomed the FCA action but said payday lending remains a “parasite”. Guy Anker, managing editor at MoneySavingExpert.com, said: “We knew when Wonga had its wrists slapped twice last year after its horrendous practices that it was just the tip of the iceberg.

“The payday lending industry has been a parasite on this country, it lived in a void of regulation for far too long. Thankfully, we have started to see much greater scrutiny of the ways these dangerous businesses in this dangerous industry operate. And now their horrible practices are starting to catch up with them.”

Dollar is part of US-based DFC Global Corp, ultimately owned by private equity giant Lone Star, founded by billionaire John Grayken.

The FCA said that customers do not need to take any action. Dollar will start contacting customers immediately and plans to complete the redress exercise by early 2016. This includes tracking down those people who have changed their contact details or bank account information.