Debt purchase and collections company Motormile Finance UK has agreed to provide redress to more than 500,000 customers by writing off £414 million of debt and making repayments of £154,000 for historic failings in its due diligence and collections process.

The repayment is part of an agreement with the Financial Conduct Authority (FCA), which had found Motormile Finance UK to have inadequate systems and controls over its due diligence process.

Motormile Finance UK, which also trades as MMF, MMF Debt Purchase and MMF UK, collects debt on behalf of creditors and specialises in buying short-term loans.

The FCA says the Leeds-based firm "failed to conduct sufficient due diligence upon the purchase of a debt portfolio to be satisfied that the sums due under customer loan agreements were correct". This led to "unfair and unsuitable" outcomes for its customers.

The redress will consist of £154,000 in cash payments to 2,148 customers and the writing off of £414 million of debt where the firm has been unable to prove the outstanding debt balance is correct and properly due.

In February 2015 the FCA appointed a 'skilled person' to conduct a review of Motormile's existing loan portfolios and collections processes, including its due diligence. The company has since changed its processes, systems and controls to lessen the risks identified.

In August this year, the FCA authorised Motormile after having been satisfied its poor practices were in the past and major changes had been made by the firm. These included a bespoke new IT system and the appointment of a new chief executive.

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What happens next?

You don't need to take any action as Motormile will be contacting all affected customers by email or post in the coming weeks. The company plans to complete the redress scheme by February 2017.

Motormile has set up a dedicated page on its website to provide further information to customers.

What does the FCA say?

Jonathan Davidson, director of supervision – retail and authorisations at the FCA, says: "We have agreed this package, and previous action, to protect the customers of Motormile from unfair practices. We have worked closely with Motormile, and are now satisfied with their progress and the way that they will address their previous mistakes.

"This evidences the importance of conducting sufficient due diligence and how failing to do so leads to poor treatment of customers."

What does Motormile say?

Denise Crossley, Motormile chief executive, says: "We apologise to all of the affected customers and are delighted that we are able to address the issues through the redress scheme we have agreed with the FCA.

"MMF are now fully authorised by the FCA which is testament to them witnessing first-hand the serious approach we take to our regulatory responsibilities and our desire to treat customers fairly. We will strive to build on the excellent reputation we have in the market and continue to put customers first in everything we do."