SafetyNet’s collapse after FCA acts on evidence – but victims abandoned

On 10 January 2023 the Financial Conduct Authority (FCA) announced that Indigo Michael Limited trading as SafetyNet Credit and Tappily had entered administration.

In July 2022 the FCA had BANNED Indigo Michael from using a Continuous Payment Authority (CPA) to take repayments from existing customers if doing so "would leave insufficient funds for priority debts or other essential living expenses.”

The regulator had also told Indigo Michael Limited (IML) it must recognise customers’ rights to appoint third parties to raise complaints, paving the way for a barrage of complaints from the claims management industry. It placed this requirement on the firm in July 2022 and further restrictions in December 2022.

The FCA’s actions followed work by Debt Hacker, Alan Campbell, Hock Chan, the All Party Parliamentary Group on Personal Banking and Fairer Financial Services, Transparency Task Force, Lord McNicol, Yvonne Fovargue MP, Greg Hands MP, other politicians and consumer campaigners. The firm’s poor practices were covered widely by the media.

Debt Hacker had raised questions about Indigo Michael, SafetyNet and Tappily since November 2020 with the firm itself (which responded with aggressive legal threats attempting to silence us), The FCA, The Financial Ombudsman Service, HM Government, politicians and journalists.

How it represented its interest rate

SafetyNet acquired customers by advertising that it lent at 0.8% per day for the first 40 days and promised an interest-free period after that. Yet Indigo Michael’s misuse of Continuous Payment Authorities (CPAs) to auto-repay all or substantially all of the loan balance each month resulted in no customers ever benefiting from interest-free periods.

SafetyNet’s advertised 68.7% representative APR was calculated assuming equal instalments over a full year and that the customer benefits from the full interest free period for the remaining 325 days when the use of CPAs meant that this was impossible.

SafetyNet collected repayments via misusing CPAs so no customer could benefit from the interest free period:

“The 68.7% APR was a fantasy, based on an assumption using an interest free period that borrowers did not benefit from” says retired solicitor Hock Chan, who has over 25 years’ experience practising financial services law with senior roles in financial institutions and private practice, and has also been controller of a financial licence holder himself. “It put people into perpetual monthly payday loans, because they repaid the full amount every month who were then forced to reborrow.”

1200% trap – not 68.7%

SafetyNet’s business model through abusing CPAs meant that in many cases customers were trapped in payday loan rates of 1200% APR.

In 2021 Debt Hacker responded to the All Party Parliamentary Group (APPG) on Personal Banking and Fairer Financial Services Call for Evidence about the FCA. Debt Hacker told this Parliamentary Enquiry into the FCA how SafetyNet’s CPA abuse meant many customers were locked into a cycle of repeated reborrowing at 1200% APR and not the advertised rate of 68.7%.

An ingeniously-crafted “bait and switch”

The scheme “was designed by IML directors, with advice from a top City law firm and a QC,” says Hock Chan. “It resulted in gross overcharging of consumers who never got the benefit of the interest free period.” 

On the basis of IML’s filed accounts, we estimate that in the 6 years before its collapse:

  • 900,000 customers were collectively over-charged £293m

  • 275,000 people may have had non-payment markers applied to their credit reference files

  • These victims – more than the population of Westminster – will have been unable to obtain affordable credit for the following six years: no mortgage, no affordable loans or credit cards

While we applauded the regulator’s action, we asked:

  1. Why the FCA did not act earlier when it was apparent that SafetyNet did not “place the fair treatment of consumers at the heart of its business model.”

  2. The FCA to protect the firm’s 150,000 customers (at the time of its collapse) whose loans may not have been enforceable without a court order, order compensatory payments for the estimated 900,000 customers impacted by IML’s abusive business practices, impose a moratorium on repayments, and discipline its directors.

What next?

  • More about the key actions Debt hacker called for the FCA to take and why a failure to ensure recompense to victims was a failure of the Government’s financial inclusion agenda.

  • More about the SafetyNet (Indigo Michael Ltd) directors, including serial entrepreneur Iain McKenzie.

  • How we stood up to aggressive bullying from SafetyNet’s top City lawyers whose threats of injunctions and strategic legal actions against public participation (SLAPPs) were designed to intimidate and silence us.