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The recent news about payday lender Wonga going into administration has highlighted quite how significant the problem of mis sold payday loans has really been.
Wonga’s financial problems have occurred because of millions of pounds in refunded loan charges and compensation pay-outs to hundreds of thousands of customers. Bad news for Wonga is good news for people who’ve used pay day lenders though – as it goes to prove that an enormous number of people are entitled to refunds.
If you’ve had a payday loan from any payday lender – you could be entitled to a part or full refund of interest or charges relating to your agreement. In some cases, people’s loans are written off altogether.
In this quick guide, we’ll walk you through what you might be entitled compensation for – and how to go about getting it.
Your first step in working out if you’re due the same should involve considering the lenders and products you’ve used – and how you’ve been treated. Problems have occurred in 2 main areas:
Perhaps the most significant problem with some payday lenders has been their apparent disregard for affordability checks when loans are issued.
Since the 2008 financial crisis, the Financial Conduct Authority have put strict affordability criteria into place for lenders. It’s a lender’s responsibility to check that you can afford the payment you’re potentially going to have to make – and they should consider your wider finances and lifestyle when making a decision about this.
Around 6 million people in the UK are in ‘problem debt’ – essentially, more debt than they can afford to pay each month. If your outgoings are tight, you’re unlikely to be able to afford the often-significant repayments that are needed for a payday loan – so, responsible lending guidelines should mean you can’t get a payday loan. However, a number of payday lenders have issued loans anyway – and have profited significantly when people can’t pay – through additional charges and extra loans.
In many cases, lenders have offered additional loans to people who cannot afford to pay other payday loans – effectively incurring more and more debt that borrowers are likely to never be able to pay off.
A Continuous Payment Authority (CPA) is a type of repayment that is often used by payday lenders. A CPA allows your lender to collect money from your account without seeking authorisation from you each time – and without the protection of a Direct Debit Guarantee.
There have been tens of thousands of cases where lenders haven’t been able to take the full amount of from a borrowers account – so have taken multiple smaller payments – and still left a debt outstanding. For many people, this has made an already unaffordable loan into a double-problem, leaving them short for payment for other bills and life expenses.
CPAs aren’t always a bad thing – but payday lenders have been in the habit of using them in a way that makes it very difficult to manage and predict your money situation.
A huge number of people have been mis sold or mislead by payday loan companies – and many of them don’t realise this has been the case, sometimes accepting that payday loans are simply a less-the-perfect way of dealing with an already tricky financial situation.
In reality, you should never be offered a financial product that has a good chance of making your financial situation worse – and it’s a lender’s responsibility to make sure this is never the case. With that in mind, you’ll be able to judge whether or not you’re likely to have a claim to pursue by asking yourself a few simple questions:
Firstly, it’s absolutely crucial that you’re not embarrassed or think you “should have known better” – when it comes to your finances. Legally, it’s the responsibility of the lender to make sure you understand and can afford your loan – and millions of people have been caught out.
If any of the above apply – you should think strongly about making a claim.
There are companies who might offer to help with payday loan claims – but in actual fact, you’ll more than likely be able to pursue the claim yourself. These are the steps to take:
Collect together any information you have relating to your loans. Credit agreements and bank statements are useful to have here. If you can’t find them, contact the companies you’ve had loans with and ask them for copies of your paperwork – they have a legal obligation to keep them, and provide you with copies if needed.
Think about times and dates when you struggled with payments or had to take further loans to cover your outgoings. Think again about the questions above and note down the problems you faced.
Instead of calling a payday loan company about a claim, you should always write to them. When you do, make sure you include the following:
If you’re not totally confident writing the letter – or you’d like some support in making sure it’s right, your local Citizen’s Advice service will be able to help.
Your payday lender(s) should acknowledge your complaint quickly and should have resolved your problem fairly within 8 weeks. If they haven’t then it’s the right time to talk to the Financial Ombudsman Service (FOS) and have them act on your behalf. The FOS is totally free to use, but they won’t get involved until a financial company has been unwilling to resolve the problem directly.
You can talk to someone at the FOS on 0300 123 9 123 or 0800 023 4567 – or find details of how to make a complaint at www.financial-ombudsman.org.uk.
The law is very clear about financial products; customers should always be treated fairly, whether they’re taking out a small payday loan – or a multi-million-pound mortgage. It doesn’t matter how much your payday loan was for, if you feel you’ve been mistreated or faced hardship as a result, you owe it to yourself to make a claim.