Troubled payday lender The Money Shop is reportedly in talks for an £18million payout for customers in a move that echoes the collapse of rival Wonga last year.
The short term credit provider and pawnbroking chain is to ring-fence a pot for more than two million customers, linked to complaints on affordability fuelled largely by claims management companies.
It comes after the company wrote to employees last month stating an “unprecedented number of customer complaints” about historic misdeeds meant it was “no longer viable to continue trading”, putting 427 jobs at risk.
Shortly after a letter was sent, it emerged the company had experienced heavy losses of more than £87 million in the year to June 2018.
Instant Cash Loans (ICL), which owns The Money Shop, Payday Express and Payday UK, has been in talks with the City watchdog for several weeks about the programme, according to Sky News.
It is understood that ICL will begin writing to up to 2 million customers on Tuesday to seek their support for a scheme of arrangement, under which they could receive payments if they have a valid complaint about a loan they took out from the company.
ICL is owned by the US-based hedge fund HPS Investment Partners, which the broadcaster alleges has taken the decision to close the business, which has been among the biggest payday lenders in the UK for at least a decade.
The scheme of arrangement, which is a court-sanctioned process requiring creditor approval, is likely to involve a vote in September.
ICL stopped providing high-cost short-term loans last August, but it has since been swamped by complaints relating to affordability criteria.
The complaints are largely fuelled by claims management companies - a practice which also famously led to the demise of Wonga in 2018.
ICL, which has around 220 UK stores, has already closed a number of branches in recent months, and sold more than 20 stores earlier this year to rival chain Ramsdens.
