The Ultimate Payday Loan & Short Term Loan Claims Guide: How To Claim Back Your Payday Loan Claim Interest.
Complaints about payday loan companies are skyrocketing – totalling to 17,256 in 2017 alone (which represented a year on year increase of 64%). If your payday lender didn’t fully assess the affordability of your repayments, you may be eligible to make a payday loan claim. To make a claim, you’ll need to complain directly to the lender yourself or, if you prefer, appoint a professional representative company to act on your behalf. Should your lender’s response be unsatisfactory, you’ll then need to lodge a complaint with the Financial Ombudsman Service which has the power to force a lender to compensate you.
Until a review by the Financial Conduct Authority in 2014, payday loan companies could charge whatever rates they chose, free from any set regulatory rules for assessing borrower affordability. This led to loans being approved for thousands of consumers who couldn’t afford the borrowing, and who shouldn’t have been given the loans in the first place. That said, a piece of legislation (The Consumer Credit Act 1974) did require payday loan lenders to consider “creditworthiness” of applicants. For a long time payday loan lenders said this was different from having to assess “affordability”, so they didn’t undertake the affordability checks they should have. This prompted an investigation by the Office of Fair Trading.
Changes occurred, with the Financial Conduct Authority becoming the industry regulator. It quickly set out rules that payday lenders have to adhere to. These rules came into effect in 2015. In brief, these rules require that payday lender:
- Set daily interest at a maximum of 0.8% (equal to 80p of interest per £100, per day)
- Never charge a borrower more than double their original loan amount
- Never charge default fees or late payments fees that are larger than £15
- Must provide information on how borrowers can get free debt advice prior to refinancing or rolling a loan over
- Must display a new risk warning on all electronic communications and non-electronic media
- Can only allow borrowers to roll their loan over a maximum of three times
- Can no longer collect part payments by CPA (Continuous Payment Authority – which allows lenders to take money directly from a borrower’s account) should the full amount not be available
- Are only able to make two failed CPA attempts. After two attempts, the lender must contact the customer
These rules are aimed at ensuring lenders satisfy two core aims:
- “to ensure that firms only lend to borrowers who can afford it”
- “to increase borrowers’ awareness of the costs and risks of borrowing and ways to get help if they have financial difficulties”
Tellingly, since the introduction of the new rules in 2015, the number of payday loan approvals have fallen by a staggering 42%. It’s also estimated that the cap has resulted in savings of £150 million in fees that would otherwise have been paid by hard up borrowers. In the three years since the new rules, lenders have had to repay more than £300 million in unaffordable lending and fines, resulting in 1,400 lenders closing down entirely.
What is an unaffordable loan?
Unaffordable lending means lending that the consumer could not reasonably afford at the time it was taken out. Lending money without checking affordability is known as irresponsible lending. If you were only able to repay your payday loans by applying for a new loan (either from the same or a different lender), then your loans were most likely unaffordable.
The Rules Before 1 April 2015
There were no regulatory rules about lending prior to April 2015. However, you can argue that the Consumer Credit Act 1974 required lenders to check “creditworthiness” and that this imposed an obligation to consider affordability.
The Rules After 1 April 2015
“the borrower should be able to make the required repayments without undue difficulty, whilst continuing to meet other debt repayment obligations and reasonable regular outgoings”.
Signs that your loan may have been unaffordable include…
- you frequently reconsolidated loans or borrowed shortly after repaying a loan
- your loans from a single lender were regularly increasing in size
- you missed some repayments
- you made some repayments late
- the loan was a substantial part of your income
The Problem Still Persists
Despite the 2015 rules, it seems as though lenders are still failing to thoroughly check their borrowers’ circumstances. Proof of this comes in the form of research into the purpose of payday loans, with 1 in 2 borrowers saying that they took out a loan to cover living expenses, and 19% reporting using a payday loan to cover a decrease in income. It’s then unsurprising that the Citizens Advice Bureau reports that an estimated 76% of payday loan borrowers could be eligible to make a claim.
Automatic Lender Instigated Refunds: You Can Still Claim
Wonga and multiple other payday lenders have previously written off some loans and paid their customers compensation. In this instance, some borrowers of closed loans have already been compensated for some of their loans. However, in many cases, these refunds were not as expansive enough and we have seen clients go on to win many further thousands of pounds.
How Much Compensation Could I receive
If your claim is “upheld” then you should expect to receive a full refund of the interest and charges that you paid. 8% will be added on top of this to cover interest.
Payday Loan Claim refund example
Say you took out 10 loans for £400 and would pay back £520 each time. This means your fees were £120. Your claim would be £120 x 10 = £1200 plus interest.
Your payday lender may make an offer of compensation that you can either accept or decline. Should you decline the offer, you’ll need to make a counter-offer as to how much you would accept. Should you not be able to come to an agreement, you’ll then need to refer your complaint to the Financial Ombudsman.
I’ve already repaid my payday loan – can I still make a claim?
Yes, you may still be eligible for a refund even if you’ve completely repaid the loan.
How to make a Payday Loan Claim
- STEP 1: GATHER YOUR PAYDAY LOAN PAPERWORK – If you still have paperwork from your loan put it all together (e.g. emails, bank statements, credit reports, a statement from your lender’s website etc.). If you no longer have any details, you’ll need to email the lender.
- STEP 2: ASK YOUR PAYDAY LENDER FOR A REFUND. Once you have your loan details to hand, you should approach your payday lender to ask for a refund. To demonstrate that the loan was unaffordable, you should create a list of your income versus expenses per week/month at the time of the loan. This should include all of your expenses (such as your rent, council tax, electricity and gas, broadband and telecoms, insurance, transport costs, supermarket shopping, clothing, childcare, other debt payments etc). If you don’t have all of these details simply provide the information that you are able to. Be aware that you may need to send copies of your credit record, bank statement or payslips. If you send bank statements then you won’t need to send your payslips. Your lender is permitted 8 weeks to reply according to the Financial Conduct Authority Handbook.
- STEP 3: APPROACH THE FINANCIAL OMBUDSMAN SERVICE. There are three situations where you may need to approach the Financial Ombudsman. ignores your request (and doesn’t respond within 8 weeks) (i) The payday lender makes an offer of compensation that is too low (ii) The payday lender refuses to offer you any form of refund (iii) The payday lender refuses to consider a refund as your loan is either over 6 years old or has been sold to a debt collector. Your lender may also say that that you’re not entitled to payday loan compensation. This isn’t uncommon, and you should still file a complaint with the Financial Ombudsman Service.
The Financial Ombudsman Service is a government-run independent body that offers free advice to consumers of financial products. They oversee research, take legal action against lenders and handle complaints.
To complain to the Financial Ombudsman Service, you will need to complete their online complaint process. You can start the process by phoning their free confidential phone line on 0300 123 9 123; text for a call back via 078 6002 7586 or email the payday department on: firstname.lastname@example.org.
Making a payday loan claim: Issues you should be aware of
IVA, Bankruptcy and debt reduction
There are a number of problem cases that simply aren’t worth pursuing, including:
- Bankruptcy – whether you’re currently bankrupt or have previously been declared as bankrupt, any refund for payday loans prior or during your bankruptcy would likely go to the Official Receiver, rather than yourself.
- IVA – if you’re under an IVA (Individual Voluntary Arrangement), any compensation may be paid or due to your IVA firm, rather that yourself.
- Debt Relief Order – a debt relief order (an often-low-cost alternative to bankruptcy) could be cancelled should you receive your refund.
- Borrowing with non-UK authorised lenders – these aren’t covered by the Financial Ombudsman’s services. Two of the most common lenders that fall into this category include SwiftSterling and PoundsTillPayday.
Payday loans over 6 years old
Some lenders are refusing compensation claiming that loans older than 6 years old are ineligible. If your loan falls into this category, make sure you include a note in your complaint to the lender that you’ve only just become aware that you could make a complaint against this from of irresponsible lending. You should also be aware that the Financial Ombudsman will allow you to complain against all loans – including those that are older than 6 years old.
Common Lender Refusal Reasons That Aren’t Valid
There are four common responses that payday lenders provide that aren’t valid reasons for refusing your compensation claim:
- They relied only on the information you provided – since 2013 payday lenders have had a responsibility to gather sufficient information to assess your affordability
- You repaid your loan or loans early – this does not demonstrate that you could afford your loans, only that you may have wanted to save on the loan interest
- Your borrowing didn’t rise with each loan – the important point is that you continued to borrow
- You had a good credit score – this is irrelevant, they still should have manually assessed your affordability at the time of application
Should your lender respond to your payday loan claim with any of these reasons for refusal, you should still pursue your complaint with the Financial Ombudsman Service.
Common Consumer Misunderstandings About Payday Loan Claim
The Financial Ombudsman Service reports that there are many frequently misunderstood reasons for consumers believing that they can’t make a claim for unaffordable lending. These include:
If the consumer asked to borrow the money, they can’t complain if they are lent it.
Creditors have a responsibility to ensure that their borrower can afford the loan – regardless as to the fact that the borrower applied for the credit.
It’s always wrong to lend to someone who is dependent on benefits or is disabled.
Any individual, with a disability and/or on benefits, is entitled to apply for a payday loan. The question as to whether this lending is affordable or not would be approached in the same way as anyone else.
It makes no sense for a lender to lend to someone who can’t afford to repay the money – so the starting assumption should be that the lending was affordable.
Any and all complaints to the Financial Conduct Authority begin with a neutral position. They do not assume either side is right, and only make a decision when they’ve listened to both parties and gathered sufficient information.
Should You Claim Yourself Or Use a Claims Company?
When making a payday loan claim you can either handle the process yourself or get in touch with a specialist payday loan claim company for their help. While managing the process yourself is free from charge, using a claims company does mean that you benefit from an expert who is experienced in the process.
Why We’re Regarded as Leaders in Payday Loan Claim
A Trusted Name Allegiant Finance Services Ltd is widely regarded as a pioneer in the high cost loan claims management market.
Friendly & Experienced Advisors Contactable by email, phone, live chat or post, whichever you prefer.
Confidential & Discreet We will only correspond with you and keep your details secure. We’ll never sell your data.
Proven Track Record We've been claiming high cost loan refunds since 2013
Online Application Full online application process. Receive an automated decision on whether we can take on your claim
Over £8 million+ Recovered We are proud to have recovered £millions on behalf of our customers.