Administrators for the collapsed rent-to-own firm BrightHouse, which specialised in loans for big-ticket items such as fridges and sofas, have warned they will not have enough money to compensate thousands of customers who were left with unaffordable debts.
The latest report from the accountants Grant Thornton, which is managing the administration, shows a plan to set aside £600,000 for payouts to customers who may have been mis-sold expensive loans by BrightHouse has been scrapped.
Meanwhile, a number of creditors have received large sums. They include the supply chain finance firm Greensill, which is itself in administration after collapsing last year. Greensill – or its creditors – have received nearly £31m.
The process will raise fresh questions about how UK insolvency rules prioritise payouts for investors and lenders over customers.
Before it went bust in 2020, BrightHouse offered high-interest rent-to-own contracts to customers who would otherwise struggle to afford the upfront costs of household goods such as fridges, ovens, TVs and sofas. It charged interest of up to 69.9%, which, on top of service and insurance fees, could mean customers were paying two to three times the cost of the item on the high street. Some customers were never able to own the goods if they fell behind on payments.
BrightHouse customers were typically from low-income households receiving state benefits. The decision means some of the UK’s most vulnerable consumers could be missing out on crucial funds, just as the cost of living crisis squeezes finances.
Grant Thornton originally set aside up to £600,000 to deal with more than 11,000 affordability claims from customers who fear they may have been mis-sold loans. But its latest report, published in late April, reveals that the administrators plan to seek court permission to scrap the compensation pot after deciding that the cost would be too high.
“Given the likely significant volume and complexity of customers’ affordability claims … it is the administrators’ expectation that the cost associated with assessing these claims would far exceed the funds available for distribution,” the report said.
“As a result of the above, the administrators are seeking to make an application to the court in the coming period to seek to disapply the prescribed part,” it added.
Under the original plans, customers would have been due refunds for fees and interest, as well as an additional 8% interest on that sum dating back to the start of their loan.
Meanwhile, administrators confirmed they had hired a debt collection agency to “improve” repayments from customers and “maximise” payouts for creditors. Those creditors have included Greensill Capital, whose collapse last year sparked a wave of political scandals.
Greensill, which specialised in offering advances on company invoices for a fee, issued loans to BrightHouse in 2018. As a lender, Greensill was counted as a secured creditor, putting it at the front of the queue for repayment when its customer, BrightHouse, went bust. The administrators’ report confirmed that Greensill was repaid in full, receiving a total of £30.86m in 2020 – a year before it collapsed into administration.
Sara Williams, a debt adviser and author of the Debt Camel blog, said: “The hundreds of thousands of customers who should have had a refund for unaffordable lending will receive nothing. The money that customers have been pushed into paying during the administration is all going to the secured creditors.”
She added: “The government and the Insolvency Service need to change this. The customers are the innocent victims here and they should be given priority. Administrators should not seek to collect debts without considering first if the loan was mis-sold.”
The issue is particularly acute for customers of rent-to-own firms, who are typically young, female, or single parents, living in rented accommodation.
Customers have faced similar problems when dealing with the collapsed payday lenders such as Wonga. Hundreds of thousands of its former borrowers who were mis-sold loans by the company were told they would only receive 4.3p for every £1 owed in compensation.
A spokesperson for administrators at Grant Thornton, which is also handling Greensill’s wind-down in the UK, said they were carrying out their obligations in line with UK insolvency rules and have distributed assets from BrightHouse “as required by legislation”.
The spokesperson said.“Whilst Greensill Capital (UK) Ltd was previously a secured creditor to BrightHouse, any obligations it was owed as part of BrightHouse’s administration were paid to it in accordance with the law and prior to it entering into administration itself. We have no further comments beyond the contents of the administrators’ filings in respect of both matters.”
A spokesperson for the Insolvency Service said: “The insolvency framework is designed to ensure that the creditors of an insolvent business receive as much of their money back as possible, and it is the duty of insolvency practitioners to consider the interests of all of the creditors in carrying out their work.”