Morse Club pursues potential use of a Scheme of Arrangement over unaffordable lending claims

Credit lender Morses Club is pursuing the potential use of a Scheme of Arrangement to deal with customer redress claims for unaffordable lending against the business.

The Batley-based firm has seen a rise in complaints submitted by claims management companies.

An additional provision of around £45m is expected to be recognised in the 2022 financial year accounts as an exceptional item.

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Morses Club said a key objective of a potential Scheme would be to treat all customers equitably and settle eligible redress claims over a period to be defined.

Credit lender Morses Club.Credit lender Morses Club.
Credit lender Morses Club.

It added that the directors believe that a successful Scheme would provide more certainty in respect of the total liability for redress claims and help to secure the longer-term stability of the company.

While Morses Club has adequate liquidity for the immediate future, directors believe that without a potential Scheme, the level of redress claims could jeopardise the group's future. Morses Club added that it will continue to explore alternative options to a Scheme but it is likely the alternative options would result in those with redress claims receiving considerably lower amounts than they would under the Scheme.

The company said it has tightened its lending policies and, as a result, has seen a decline in sales volumes.

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The structure of its loan book has also changed due to a higher concentration of new customers.

Therefore the directors believe that for the year to February 25, 2023, which is a transition year in which legacy issues can be largely resolved, the company will not make a profit.

As a result, the board will not recommend a FY22 final dividend to shareholders in order to protect its cash position.

The firm added that the short-term focus for Morses is the establishment of a Scheme, the outcome of discussions with the FCA about the company's business model and securing funding facilities beyond March 2023.

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Gary Marshall, CEO of Morses Club, said: "As the UK's leading home collected credit provider, we provide a valuable service to thousands of our customers who are unable to access mainstream credit providers and are likely to need even more support given the current economic climate.

“A successful Scheme of Arrangement would provide more certainty to the total liability arising from customer complaints and ensure that we can reshape the business for the future.

“The potential Scheme is intended to provide a fair settlement for all eligible customers, whilst securing the company's future and enabling us to continue to provide access to credit for an underserved and growing demographic."

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