Payday lender fined more than half a million pounds after being duped by ID fraud

15  January 2013

A payday lender has been fined more than half a million pounds and had its licence revoked after falling victim to fraudsters who successfully impersonated thousands of people to take out loans.

MCO Capital, which was using the online names Help Loan and Balance Loan when it was duped, failed to carry out adequate identity checks and lacked the skills and knowledge needed to run a consumer credit business, the Office of Fair Trading (OFT) found.

Its failures made it vulnerable to fraudsters, who used the personal details of more than 7,000 people to successfully apply for loans worth millions of pounds, the trading watchdog said.

MCO Capital then caused “unnecessary distress and inconvenience” by writing to people to collect the debts, even though it knew they might not have actually borrowed the money, the OFT said.

The watchdog has imposed a £544,505 financial penalty on MCO Capital and revoked its consumer credit licence, which it needs in order to trade.

However, the lender has 28 days to consider whether to lodge an appeal and said it plans to continue trading, which it is entitled to do, while it decides what to do.

The lender, which now trades online under the names Speed Credit, Paycheck Credit and Pop Credit, said in a statement: “MCO Capital is disappointed at the decision of the Office of Fair Trading and is studying the adjudication that it takes very seriously.

“When we have had time to fully consider the decision of the OFT will we be in a position to decide our next steps, which could include lodging an appeal.

“MCO continues to trade as it is fully entitled to do so whilst a decision regarding a possible appeal is being made.”

Lenders must carry out appropriate identity checks under the Money Laundering Regulations, which are designed to stop lenders leaving themselves open to money laundering and terrorist financing.

The frauds took place around the summer and autumn of 2010 and people were chased for loans they may not have taken out well into 2011, the OFT said.

The watchdog said MCO engaged in “unfair business practices” by asking for repayments from people whom it knew may not have taken out the loans. It said the lender had ignored the watchdog’s requests to stop.

City of London Police detectives, who wrote to those whose details were compromised, also raised concerns in April last year that people had received demands for the repayment of loans they had not taken out.

Detective Inspector Perry Stokes said at the time: “It is unacceptable that innocent people continue to be contacted by various credit collection companies asking them to pay back money they never borrowed.”

He said company officials assured police there would be no further recovery action without clear supporting evidence to indicate that a legitimate loan has been taken out.

David Fisher, OFT director of credit, said: “MCO’s failure to put adequate procedures in place made it vulnerable to fraud.

“The way in which MCO then wrote to consumers to collect debts caused unnecessary distress and inconvenience to thousands of people.

“This financial penalty sends out a strong message that businesses lending to consumers must have adequate anti-money laundering procedures in place.”

Consumers who are pursued by a lender for a debt they do not owe should write to the lender and, where appropriate, the debt collection agency, making it clear why payment is being refused, the OFT said.

In May, the trading watchdog criticised high-profile payday lender Wonga.com for using aggressive and misleading debt collection methods.

Wonga suggested in letters and emails without appropriate justification that some customers may have committed fraud, the OFT said.

Wonga said the letters, which were sent out more than 18 months previously, were sent on “isolated” occasions and it has already put a stop to such activities.

Sarah Brooks, director of financial services at Consumer Focus, said: “MCO’s practices will have caused considerable distress for consumers, so it is good to see this action from the OFT.

“However the difficulty is that currently the OFT has no power to stop the company trading until the appeals process has finished.”

She said she welcomed the Government’s plans announced last month to give the OFT new powers to stop rogue money lenders and debt collectors in their tracks by instantly suspending their licences.

John Lamidey, chief executive of the Consumer Finance Association (CFA), which represents payday lenders, also welcomed the OFT’s actions.

He said: “We are working closely with the Government to help raise standards in the industry and to prevent cases like this, which can cause significant problems for consumers.”

He also said anyone taking out a payday loan should make sure the lender complies with the industry’s recently-introduced good practice charter.