If you’ve ever taken out a payday loan, whether in the past or if you’re still making payments towards one at the moment, you could be entitled to a part or full refund of the interest and fees you’ve been charged.
Many borrowers aren’t aware that they’re entitled to this refund and in certain cases the full loan amount could be written off altogether.
So, if you’ve ever had a payday loan then the information in this article will help you to see if you’re entitled to make an application of your own. And if you are, it will also supply step-by-step guidance on how to claim your refund.
What is a Payday Loan?
The term payday loan is used to describe a particular kind of short-term emergency loan that soon became a popular marketing phrase throughout all the typical media and advertising channels. Brands such as Wonga, QuickQuid and Pounds to Pocket became household names offering an easy to apply for short-term loan to get you out of a sticky situation.
Nothing wrong there so far. That’s exactly the job a payday loan was created for. A short-term loan designed to help you cover an unexpected or emergency expense. The adverts you’ve seen on TV correctly show that if you need to find money not currently available to you to pay for a broken boiler, unforeseen vehicle expenses, or any other surprise event or emergency situation, then the service provided by the lender is right for you as long as you have the means to pay it back in the allotted timeframe.
If however, you have taken out a payday loan to cover your general living expenses, to pay the mortgage, the rent, or your day-to-day bills, then this is an incorrect use of the loan and if you have been loaned the amount specifically for this application then the lender has broken the rules by lending money to a borrower who isn’t in a financially stable situation to make the repayments.
Industry legislation make it quite clear that anybody who needs to borrow money to pay for their everyday living costs is not in a position to make additional repayments on top of them from their monthly income.
Unsurprisingly, studies have shown that a high number of payday loan borrowers took out this form of credit to cover exactly those things. 7 out of 10 said that their loan was to cover daily expenses or to repay a previously acquired payday loan repayment.
The same study learned that of those who had taken out a payday loan 3 out of 4 would take out another in the same year and of those borrowers they would take an average of 6 different payday loans within that year. This is why there are so many instances of payday loans being mis-sold and how there are so many instances suitable for refunds.
Who are the payday lenders?
You may recognise your lender from the following, but the list is by no means exhaustive. These are just a handful of those who could have issued unfairly determined payday loans: Wonga, My Jar, Mr Lender, Lending Stream, The Money Shop, Pounds to Pocket, Peachy, Payday UK, Quick Quid, Wageday Advance, Satsuma, Sunny, Uncle Buck and more.
If your lender doesn’t appear, don’t panic, a quick Google search will determine whether your lender operates as a payday loan company or not.
Am I entitled to a Payday Loan Refund
The Financial Conduct Authority (FCA) states that “The lender must make a creditworthyness assessment and the assessment should include the lender taking reasonable steps to assess the customer’s ability to meet repayments in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences.”
The FCA regulation defines “sustainable” as 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;
It might all sound a little confusing at first but it’s fairly simple to find out if you have an appropriate case to apply for a refund.
Have you taken out a payday loan in the previous 8 years?
To recognise whether or not any loan you have taken out was a payday loan or not can usually be derived by checking your bank statements or loan documentation to see if the company who gave you the loan are registered as a payday loan company.
A simple Google search will often show whether the company involved was a payday loan company or not. Nearly all will use the term on their marketing or loan documentation but even if they don’t they may still be working as a payday loan company and you may still have the right to make a claim for your refund.
Was your loan rolled from one month to the next?
Ideally, a payday loan is designed to be repaid in full within one month or at your next payday. If however, you cannot manage the full payment as initially agreed with your lender then it would show that the lender has entered into the arrangement without making an appropriate investigation into whether or not you could comfortably afford to repay the loan.
This is called an ‘affordability check’ and should be performed each month that your loan is active. When a lender fails to carry out these checks and a borrower continues to accrue additional charges, then the lender has broken the legislation that governs the agreement. In these instances the rollover loan will accrue far more debt than the borrower ever intended to take out.
Did you ever have more than one payday loan at the same time?
As already mentioned, your lender should have made regular checks to be sure that you could afford your loan repayments and if you ever had to have more than one of these loans at a time then this undoubtedly shows the struggle the borrower is having in order to try and meet their monthly budget.
Further reasons that you’re entitled to make a claim
So if you had a payday loan in the past 8 years and it rolled over into subsequent months or you had to take out another payday or similar loan to cover the repayments then you are already entitled to make a claim against your lender.
If you had any kind of struggle in making your repayments and can show this to your lender or to the Financial Ombudsman then you’re entitled to make a claim.
Those 3 items outline whether you’re in a position to make a claim but they’re not the only reasons. If you’ve been subject to any of the following then you are also entitled to ask for a refund.
By asking for help
If you asked for help from your payday loan company and didn’t receive any or the appropriate type of help then you could be entitled to claim.
Your loan company has a responsibility to you, that if you’re struggling to understand the terms of the loan or to make repayments then they must offer alternatives in making the loan manageable and within your typical monthly budget. These could be freezing the interest or reducing your payment amounts. Either way, failing to offer assistance is against legislation.
Struggling with payment
If you miss your payments then this is the way some payday lenders will boost their income from you. They will issue high penalty charges and add interest to your rollover amount. However, these should be key indicators that you’re not financially capable of meeting their requests and should be offering to help you instead of piling on the charges.
Even if you didn’t ask for help doesn’t mean that you didn’t need it and if you never received advice or alternatives to your situation then your lender is in violation of the regulations.
A Continuous Payment Authority set up created problems with your budget
Most payday lenders enter into a Continuous Payment Authority (CPA) with their borrowers. This gives them access to your bank account and can attempt to take payments whenever they choose without authorisation. In doing so this can often leave the borrower short in their finances to be able to meet other bills and responsibilities.
Lenders have been known to take large sums or multiple smaller amounts to try and recoup their loan and interest amounts. If they have done this without respect to your existing financial obligations then it is a misuse of the facility and once again, breaking official legislation.
You couldn’t really afford the loan in the first place
You may think if you’ve taken out a loan you couldn’t afford then the fault lies completely in your own hands – but you’d be wrong. The responsibility of the loan and whether it’s a fair business agreement to enter into lies in the hands of the lender.
As detailed in the FCA guidelines the lender must be sure that the borrower can repay the amount without any problematic impact of their regular budget. So if they knew you couldn’t afford to make the repayments and yet still gave you the loan then they’ve broken the rules and are liable to your claim.
How much compensation can you get?
You can claim a refund for all of the interest you have been charged, plus fees and an additional 8% interest on the total. You can also claim compensation against hardship and financial difficulties arising from the problems repaying your loan.
Generally payday loans are given on amounts between £50 and £1000. However, it’s when these claims spiral out of control that the amounts can rise to much greater amounts. There have been claims amounting to over £11,000 in compensation so it’s worth seeking out what you believe you are owed.
How do I apply for a Payday Loan Refund
Once you’ve decided you’re entitled to a refund then there are a couple of ways to make your claim.
Using a professional payday loan refund service
There are companies available who professionally manage debt issues and as such they will happily make all the steps required in approaching your lender on your behalf.
They will have a thorough conversation with you about your loans and financial situation and from this information they will advise you on whether or not you have been treated unfairly in the eyes of the law. If this is the case they’ll outline their plan of action and how much money you are likely to be awarded.
A company handling your claim will do so on a no win no fee basis meaning it won’t cost you a penny if your claim is unsuccessful — but if you are awarded a refund they will likely take quite a large percentage, usually around £35 to £40 from every £100 awarded.
Making a refund claim yourself
It may sound like a complicated situation but making your own claim is a fairly straightforward process. To help you every step of the way we’ve put together the following guide.
1. What information do I need for my application
First things first, gather all the paperwork that applies to your payday loans. This means any communication or documentation of the loan agreements and also all bank statements showing repayments and your living expenditure at the time.
If you don’t have this information to hand then you are entitled to request copies from both your lender and from your bank. From this point on collect all replies and communications, as they may be required in future.
2. Establish the reason you are making your claim
After deciding your eligibility you now need to present information outlining your case.
You need to state at least one of the following: that your loan became a rolling loan without proper affordability checks; that you didn’t fully understand the operation of the loan you were taking out; that you were forced to take out subsequent loans to cover the costs of the initial loan; that your lenders failed to offer the correct help and guidance when approached; that you struggled to make your repayments; or that a CPA was misused or not fully explained to you.
3. Write to the payday company involved
Making a written complaint is far better than contacting your lender by other methods. Make copies of your communication so that you always have proof material to reference in future steps of your claim.
Your letter should contain:
- Your complaint and the details of the loan you are complaining about.
- The timeline pertaining to the loan application, acceptance and all payments, part payments and payment failures.
- Details of additional hardship caused by the problems in making the loan repayments; for example, failure to pay other bills, additional debt problems, health issues, family problems, etc.
- How you feel the situation should be resolved — this should include the full repayment of all interest and fees paid plus the statutory Ombudsman 8% interest on top of those fees. You should also demand that the loan be deleted from your credit score as it will damage your chances of gaining credit in future.
4. Wait up to 8 weeks
This may seem like a long time to have to wait but the lender has up to 8 weeks to reply to your claim.
Often the loan companies will use tactics to defer payment. They might ask for additional information or tell you that you haven’t supplied enough detail. In this instance feel free to refer your claim to the Financial Ombudsman Service. It is unlikely the FOS will come up against the same behaviour from the lenders and will complete your claim with much less trouble.
Your lender may respond with a refusal, a low offer of compensation, or the full amount expected.
If they offer a low amount or reject your application then don’t give up hope, you can refer your claim to the FOS who will take up your claim if they believe you have been mistreated.
If your lender offers you the full amount, then our work here is done. Congratulations!
5. Refer your complaint to the Financial Ombudsman Service
If you have to refer your complaint and refund application to the FOS you will be required to provide all documentation in connection with your loan and your complaint. You will speak to someone who is well versed in handling complaints exactly like yours with your best interests at heart.
If you need to refer your case to the FOS you can call them on 0300 123 9 123 or 0800 023 4567.
For more information on the FOS and detailed advise in referring your claim visit their website at http://www.financial-ombudsman.org.uk.