Payday loan mis-selling compensation - Introduction
It is estimated that over 800,000 people in the UK are due a refund for mis-sold payday loans.
Many borrowers who found themselves trapped and unable to repay monthly interest and penalties, may now be able to get their money back.
What did payday lenders do wrong?
The industry's failure to lend responsibly has led to the misery of thousands of people.
Excessive interest and fees has left borrowers with no option but to 'roll over' their loans, or take out more loans, to service their existing debt.
Industry 'sharp practice' meant that borrowers had money taken from their accounts without permission, were harassed by phone, SMS and using fake legal letters, and did not have their loan terms, interest rates or penalty fees clearly explained to them.
Does any of this sound familiar? If so, read on as you may be able to get your money back!
Was my lender guilty of 'unfair lending'?
Many payday loan lenders were guilty of 'unfair lending' prior to regulators cracking down on the industry. But what does this mean?
What the law says: (skip to the jargon free version)
The following is excerpted from the Financial Conduct Authority (FCA)'s Consumer Credit regulations - CONC 5.3 Conduct of business in relation to creditworthiness and affordability
The Consumer Credit sourcebook (CONC) regulations state:
(1) In making the creditworthiness assessment... a firm should take into account more than assessing the customer's ability to repay the credit.
(2) The creditworthiness assessment... should include the firm taking reasonable steps to assess the customer's ability to meet repayments under a regulated credit agreement in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences.
The regulations define the word sustainable as follows:
(6) For the purposes of CONC “sustainable” means the repayments under the regulated credit agreement can be made by the customer:
(a) without undue difficulties, in particular:
(i) the customer should be able to make repayments on time, while meeting other reasonable commitments; and
(ii) without having to borrow to meet the repayments;
(b) over the life of the agreement, or for such an agreement which is an open-end agreement, within a reasonable period; and
(c) out of income and savings without having to realise security or assets; and “unsustainable” has the opposite meaning.
These regulations mean that you may be due a refund if the lender:
- did not clearly explain possible late-payment fees, default fees and other charges
- did not fully assess your financial situation (and the affordability of the loan)
- harassed you with phone calls, SMS or threatening legal letters
- allowed you to repeatedly roll loans over
- did not tell you that the loan was short term
- was unclear about the total cost or repayment
- took money from your account without warning
- encouraged you to borrow more
However, many of these points are subjective and may not be evidence in themselves that loans were definitely mis-sold.
Industry regulator clampdown
The Wild West - a history of “widespread irresponsible lending”
Before April 2014, payday loans companies were effectively unregulated.
Some lenders operated fairly and responsibly, but in 2013 an Office of Fair Trading (OFT) report uncovered damning evidence of “deep-rooted” problems and accused the industry of “widespread irresponsible lending”.
The OFT asked lenders to defend their practices. As a result, nearly half of the payday loans companies investigated by the OFT shut up shop.
A new sheriff in town
In 2014 payday loans companies became regulated by the Financial Conduct Authority (FCA).
Wonga was fined £2.6 million after the FCA found that struggling customers were being hounded by fake legal letters sent from a non-existent law firm. The letters were pressuring customers into making repayments that many could not afford.
In 2015 the FCA imposed additional rules on payday loans companies, these included:
- Maximum short-term interest rates (e.g. of 0.8% per day)
- Protection for borrowers struggling to repay their loans, including a maximum allowable default fee of £15
- Caps imposed on escalating debts to ensure that no one must pay back in interest more than they borrowed
Although the FCA's new rules now protect borrowers, many customers who were lent money before the new regulations came into force, were exposed to 'irresponsible' lending practices.
Some customers felt they had no choice but to take out additional loans in order to make repayments, making their financial situation even worse. By law, lenders were required to ensure that a borrower could repay their loan. In many cases, the lenders did not do so.
Whenever loans were taken out, if a lender irresponsibly made 'unaffordable' loans to a customer, it may now be possible for the borrower to reclaim the interest, default fees and other charges.
What counts as an “unaffordable” loan?
According to the Financial Ombudsman Service (FOS), an unaffordable loan is defined as:
“lending that the consumer could not reasonably afford at the time it was taken out”
This means that a borrower should be able to make the payday loan repayments without 'undue difficulty'.
In other words, borrowers should still be able to afford any existing debt repayments (e.g. a mortgage or bank loan) and regular household bills and outgoings (e.g. groceries, utilities and travel costs).
The lender has a responsibility to check your ability to repay the loan.
If, at the time of borrowing, it was likely that you could not afford to make repayments, the loan should have been deemed 'unaffordable' and the lender should not have lent you the money.
Do I qualify for a refund?
If you can demonstrate that the loan was 'unaffordable', then you should be able to claim a refund.
Evidence that loans were 'unaffordable' could include:
- The loan represented a big part of your monthly income
- You were borrowing more and more money from the lender
- Some or all repayments were late
- You borrowed again, immediately or soon after the previous loan
To find out if you have a payday loan claim, call us on 0800 612 7456 or request a call back here.
Which companies can I get a refund from?
An estimated 85% of payday loans were made by the following lenders:
- Payday UK
- Payday Express
- Money Shop
Quittance's solicitors have successfully sought hundreds of refunds from these, and all other, major payday loan companies.
Claiming a refund from payday lenders based outside the UK
If you took out a payday loan with a lender based outside the UK (e.g. Pounds Till Payday or Swift Sterling), you may not be able to claim a refund.
This is because the UK payday loans regulator and ombudsman have no jurisdiction over these companies.
However, it might still be worth preparing the evidence and making a claim yourself. You may also be able to make a formal complaint to the overseas lender's regulator.
Can I still claim if the lender is out of business?
It can be difficult to make a successful claim for a refund where the lender has shut down.
However, several now-defunct brands were actually operated by a small number of larger lenders. It may be the case that the lender you borrowed from is now owned by a different payday loans company that is still in business.
What can I claim for?
Any, or all, of the following can be included in a payday loan refund claim:
- The interest you paid on the loan
- Late payment, default or penalty fees
- Loan rollover fees
- Payment fees
- Statutory interest (currently set at 8%)
Note that it is not usually possible to claim back any part of the original loan itself.
For example, if you took out a payday loan of £300 with an APR of 4,670% and struggled to repay it over three months, the interest on the loan would be £488. If this qualified as 'unaffordable', you may be entitled to make a claim for the £488 you repaid in interest, but not the £300 loan itself.
How do I get my payday loan refund?
Deciding to make a claim is the first step.
You will then need to decide whether you want to use a solicitor to make the claim, or to do the work yourself.
If you choose to go through a solicitor, they will usually work on a 'No Win, No Fee' basis.
No win, No Fee payday loan refund claims
No win, no fee means you pay nothing at all if the claim is not successful.
Using a solicitor to make your claim for you
Quittance's panel of solicitors specialise in financial mis-selling claims.
The solicitor will:
- confirm whether you were a victim of mis-selling by a payday loan company
- check every detail of every loan you took out for evidence of mis-selling
- prepare all the evidence needed to support your claim
- draft letters in the form required by the specific payday lender
- correspond with the loan company to secure your refund
If the lender refuses to accept the claim, or offers only a relatively small amount of compensation, your solicitor will refer the case to the Financial Ombudsman Service (FOS).
How likely is my payday loan refund claim to be successful?
We believe around 50% of people contacting us have a strong case for a successful mis-sold payday loan claim.
Of these cases, most either receive a direct refund from the lender, or we manage the claim through the Financial Ombudsman Service (FOS).
Making a claim directly
If you wish you seek a refund without using a solicitor, you can do it yourself.
You will need to collect historic loan and bank statements and other evidence needed to support your claim and write to the loan company, setting out a comprehensive case as to why you think you qualify for a refund. The lender may initially refuse to accept your claim and may draw out the process. The lender is allowed up to 8 weeks to even reply to your letter! They often reject the claim out of hand. Alternatively, they may offer only a small amount of compensation (compared to full amount you are entitled to claim) as a 'gesture of goodwill'.
If you are ultimately unsuccessful, you can commence the Financial Ombudsman Service (FOS) complaint process. The FOS adjudicator will not make contact until after the lender has made their reply to your complaint. This typically takes between two to four months.
How long does it take to get your refund?
On average, our panel of solicitors obtain refunds in around 8 weeks. This means 8 weeks from starting a claim to receiving the refund in your account.
How long the process takes will depend on the facts of the case, and on the lender.
Some lenders agree, and process refunds very quickly. Other lenders have been known to drag out the process by responding slowly and requesting additional information, or to reject valid claims outright.
If the claim has been refused by the lender, your solicitor will take your case to the Financial Ombudsman. This complaints process can still result in a successful refund but will take longer to complete.
What if I had loans from multiple lenders?
Many borrowers have taken out loans from more than one payday loan company. This is often to pay off existing payday loan debts.
Each company is considered separately. You should be able to claim a refund from each lender that mis-sold you an unaffordable loan.
Payday loan refunds and the Financial Ombudsman Service (FOS)
The FOS handles complaints made by customers against lenders and other financial institutions, including payday loans companies.
If a lender refuses to accept mis-sold payday loan claim (or only makes an small, inadequate offer of compensation) your solicitor will take the matter to the FOS.
The FOS will consider the evidence and decide whether the lender should refund you the money you are owed.
The FOS may also take other action, depending on the circumstances of the case.
Examples of what the FOS may do include:
- Requiring the lender to write off outstanding interest or charges
- Offer advice to the borrower to assist with their financial recovery
- If an unlawful level of interest was charged (e.g. more than the original loan if the loan was made after January 2015), the lender may be required to repay the excess interest
- Where the lender knew (or should have known) that the borrower is a vulnerable person, they may require the lender to write off the loan entirely
- If the lender has been harassed, misled or treated unfairly by the lender, the FOS may also require the lender to pay compensation in respect of the distress caused
The FCA also requires lenders to respond 'helpfully and fairly' if you are in genuine financial difficulty.
In practice, the definition of 'financial hardship' varies from case to case. Payday lenders must take extra care if the borrower is vulnerable, including older people or those with significant health conditions.
If you are experiencing financial hardship (and therefore unable to make loan repayments or pay default fees and charges) and your lender is aware of this, they should take reasonable steps to help.
These could include:
- A suspension of further repayments while your finances recover
- Accepting part-payment
- Rearranging the debt into more affordable terms
- Help with interest or additional fees
If the lender is aware of your circumstances and has failed to help you, the Financial Ombudsman will be able to assist.
Abuse of continuous payment authorities (CPA's)
Continuous Payment Authorities (CPA's) enable lenders to take money out of a borrower's account in order to repay a loan. There are strict rules in place governing how these can be used.
If the FOS finds that the lender hasn't followed the rules for CPA's, and has caused the borrower distress or financial hardship as a result, the FOS may require the lender to repay any money that has been charged, in addition to paying compensation for the wider consequences the lender's actions have had on the borrower's life.
Can I claim for a mis-sold payday loan refund if I am bankrupt or in an IVA?
Technically, yes. If you have ever been bankrupt or are currently in an individual voluntary agreement (IVA), your eligibility to claim a refund will usually be unaffected.
However, if your claim is successful, any money you would receive will instead go to your IVA or to the official receiver, not to you.
Can I claim for other kinds of mis-sold loans or borrowing?
It is possible to make a refund claim for most kinds of unaffordable or otherwise mis-sold loans. You may also be able to claim if the credit limit on a credit card was repeatedly increased.
The refund process for these claims can be quite different to that of payday loans.
If you think that your loans may fit the criteria for unaffordability, or that you have been the victim of mis-selling, you should contact a solicitor or Citizens' Advice for more information.
Alternatively, you can make a complaint to the Financial Ombudsman Service directly.
Can I still make a payday loan refund claim if my debt has been sold to a debt collector?
If you have not paid off your loan, and stop repayments, the payday loans company may sell the debt to a debt collector. If this has happened in the case of a mis-sold loan, you should still be entitled to a refund.
The debt collector should be notified that the debt amount is being disputed, however, your solicitor will still contact the original lender when making the claim.
The debt collector should not take any further action (e.g. court proceedings) until the refund claim process is complete.
If my claim is successful, will the loans be removed from my credit record
Yes. An added bonus of successfully challenging payday loans is that they will be erased from your credit history if you win your claim.
Start my claim
To find out if you have a payday loan claim, call us on 0800 612 7456 or request a call back here.