BrightHouse Loan Customers Likely Not to Receive Refunds, Admins Say | Personal Loans

Administrators at collapsed rent-to-own BrightHouse, which specializes in lending for large items such as fridges and sofas, have warned they will not have enough money to compensate thousands of customers left with prohibitive debt became.

The latest report from accountant Grant Thornton, who runs the administration, reveals a plan to set aside £600,000 for payouts to customers who may have been mis-sold on expensive BrightHouse loans.

In the meantime, a number of creditors have received large sums. That includes supply chain finance firm Greensill, which is itself under administration after collapsing last year. Greensill – or its creditors – have received nearly £31million.

The trial will raise new questions about how UK insolvency rules prioritize payouts for investors and lenders over customers.

Before it went bust in 2020, BrightHouse offered high-yield leases to customers who would otherwise struggle to afford the upfront costs of household goods like refrigerators, stoves, TVs and sofas. It charged interest of up to 69.9%, which on top of service and insurance fees could mean that high street customers had to pay two to three times the item price. Some customers could never own the goods if they defaulted on payments.

BrightHouse customers typically came from low-income households that received government benefits. The decision means some of Britain’s most vulnerable consumers could be missing out on vital funds as the cost of living crisis squeezes finances.

Grant Thornton originally set aside up to £600,000 to process more than 11,000 affordability claims from customers who feared they may have been mis-sold loans. But its most recent report, published at the end of April, reveals administrators plan to seek court approval to scrap the indemnity pot after deciding the cost would be prohibitive.

“Given the likely significant size and complexity of customer affordability claims…administrators anticipate that the costs associated with evaluating these claims would far exceed the funds available for distribution,” the report said.

“As a result, the administrators are trying to apply to the court for non-application of the prescribed part in the coming period,” she added.

Under the original plans, customers would have been due refunds for fees and interest plus an additional 8% interest on that amount since the inception of their loan.

Meanwhile, administrators confirmed they had hired a collection agency to “improve” customer repayments and “maximize” payouts to creditors. Among those creditors is Greensill Capital, whose collapse last year sparked a wave of political scandals.

Greensill, which specializes in offering fee-based advances on corporate invoices, made 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 client, BrightHouse, went bust. The administrators’ report confirmed Greensill was repaid in full, receiving a total of £30.86million in 2020 – a year before it broke into administration.

Sara Williams, a debt counselor and Author of the Debt Camel blog, said: “The hundreds of thousands of customers who should have received a refund for bad loans will not receive anything. The money that customers were forced to pay during administration goes in full to the secured creditors.”

She added: “The Government and the Bankruptcy Service need to change this. Customers are the innocent victims here and should be given priority. Administrators should not attempt to collect debt without first considering whether the loan was mis-sold.”

The problem is particularly acute for rental company customers, who are typically young women or single parents living in rental apartments.

Customers have had similar problems dealing with collapsed payday lenders as Wonga. Hundreds of thousands of its former borrowers, to whom the company missold loans, were told they would receive just 4.3p in compensation for every £1 owed.

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A spokesman for administrators at Grant Thornton, which is also handling Greensill’s UK winding-up, said they would honor their obligations under UK insolvency rules and have distributed BrightHouse assets “as required by law”.

The spokesman said: “While Greensill Capital (UK) Ltd was previously a secured creditor of BrightHouse, all liabilities owed to it in connection with the administration of BrightHouse have been paid in accordance with the law and prior to entering administration. We have no further comments beyond the content of the Administrators’ filings in relation to either matter.”

A spokesman for the bankruptcy service said: “The bankruptcy framework aims to ensure that creditors of an insolvent company recover as much money as possible and it is the duty of bankruptcy trustees to take the interests of all creditors into account when carrying out their duties”.

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