Understandably, customers are often keen to find out whether their claim is going to be successful – and how much money they are going to receive if the claim wins.
It is important to manage your own expectations. Unaffordable lending claims are not a way of making money, but instead should be seen as a way of returning you back to the financial position you should have been in had the irresponsible lending not have happened. So, if you were given a loan you could not afford, and successfully claim, you can only expect to get the money back that you paid for the loan in the first place; in other words, you will get your interest and charges back.
Even when a claim is upheld, a customer would usually be expected to pay back the capital amount borrowed (if not paid back already). In other words, the compensation for being given a loan you could not afford is that it becomes an interest-free loan.
In addition to getting back the interest you had to pay for borrowing the money, a successful claim should result in you being awarded 8% simple interest on top. This is in recognition of the fact that you have been deprived of funds – as a result of having to pay for an unaffordable loan – and so you should be compensated for not being able to use that money elsewhere. It should be noted that the 8% is an award for being deprived of money (per day), so if you now still have an outstanding balance with the lender after the redress has been calculated, you cannot expect to be awarded the 8%.
Finally on this, an 8% interest award counts as income for tax purposes. So you will find that many lenders will deduct income tax from the award, at the basic rate, before they pay it to you. But it’s important to note that you should only be taxed on the 8% award – you won’t be taxed on the return of the interest, fees and charges from the mis-sold loan.
When it comes to revolving credit facilities – like catalogue accounts or credit cards – the expected approach to redress is broadly the same as with unaffordable loans. But you might find that a settlement offer is made based on a certain credit limit increase being irresponsible.
For example, you might have a credit card with an initial limit of £500. And the lender admits that it was wrong to increase the credit limit to £1,000. In these circumstances, the lender might offer to refund your interest and charges relating to any balances which exceeded £500. This way, you will be placed back in the position as if the unaffordable credit limit increase hadn’t happened.
Your credit file
When an unaffordable lending claim is upheld, it is usually expected that any negative information be removed from your credit file. Again, this is to do with trying to place you back in the position you would have been in had the loans not have been mis-sold. Afterall, it is not fair for you to suffer from a poor credit file as a result of irresponsible lending. You might get adverse information removed, or the loans might be removed entirely from your credit record.
Here to help
When a settlement offer is received, it is tempting to simply look at the pounds and pence figure. But instead, it is worth weighing up how much the offer is placing you back in the financial position you would have been in without the lending. So instead of the monetary figure, it is worth focusing on how much of the borrowing the lender is admitting liability for. For example, a settlement on nine out of ten of the loans taken with a particular lender is likely to be much better than only a couple of loans being upheld – regardless of the precise calculation of money at the end.
At Allegiant, we are always here to help. If you are using Allegiant’s services to make your claim, we will set out what a settlement offer means for you – and we will tell you whether we think it is a good or a bad offer.