The last update from Morses Club was hard to stomach for shareholders. Issues with claims and, what seemed like, an illegal sale of shares from the CEO before he stepped down. High-cost UK lenders have had to pay back millions to customers in the past and continue to do so. This has driven many payday, guarantor and high-cost lenders into the ground. High-cost lending companies Wonga and Amigo loans were once making massive profits, only to become insolvent when claims for irresponsible lending came flooding in.
This is why there was such a negative reaction to Morses Club announcing issues with claims, despite still being profitable. Investors in high-cost lenders feel they have seen this before, and know what happens next. That is the expected impact of these claims just keeps rising. Is Morses Club the next victim, or can they avoid the same fate as many previous lenders? A big clue will be the narrative surrounding their next update, which was supposed to be in May but has now been delayed by 2 months. A delay in the accounts, without explanation, has been seen as another red flag by shareholders.
Growing Claims
The problem previous lenders have had is that when customers start to discover they may be eligible for a refund, they just keep coming. Even if the claims fail it still costs the lender around £700 if it goes to the financial ombudsman (FOS). That isn’t including the internal costs of replying to claims. So when a company says they have seen increased claims, word of mouth, media reports and claims management companies create a snowball effect, where more and more customers discover the potential for a Morses refund on the back of other customers receiving their payout. With high claims success rate being reported by FOS, it’s hard to see why past customers who haven’t yet claimed wouldn’t try their luck.
Morses Club, under new management, has to find the solution to this puzzle. In the next few days, we will see how they are progressing. If they don’t survive there will be very few high-cost loan providers left.
