Personal Legal Services

Payday Loans Claims Guide

Payday Loans Claims Guide

If you need money fast, it can be tempting to take out a short-term loan, which is the type that you plan to pay back quickly.

In recent years, millions of people around the UK have turned to the most popular type of short-term loans, which are known as payday loans to deal with unexpected emergencies, to meet their household needs, or even to buy groceries.

What is a Payday Loan?

A payday loan is a short-term loan that ranges anywhere from £100 to £1000, which is designed to cater for your most pressing financial needs until the arrival of your next wages.

Payday loans are primarily designed to help you provide for emergencies that cannot be covered by regular monthly wages or savings, such as a broken central heating system or emergency car repairs.

Payday loans might sound like the perfect way to get back on your feet when emergencies strike in your life, but this is not the case. The interest rates on payday loans are usually several times higher than you would pay on a credit card or traditional bank loan.

What starts as a minuscule sum can quickly spiral out of control. To help you understand this better, here is a brief explanation of how they work.

How Do Payday Loans Work?

If you apply for a payday loan and you are approved, the money will be paid directly into your bank account, and you will be expected to repay it in full with interest and charges at the end of the month.

Payday loans have one thing in common, which is that they are short-term and high cost and typically for small amounts. You usually have until the next payday to pay back the loan plus interests, although some lenders will allow you to select the preferred repayment period.

Payday loans are considered a very expensive form of credit and can end up making your situation worse if you are unable to afford to pay it back on time. You must think carefully before taking out one.

What Are the Costs?

The costs associated with payday loans are:

  • Interest: It is the amount that’s paid to a lender to borrow money and is usually shown as the annual percentage rate (APR). The interest is spread over all payments, which means that you may pay less if you clear the loan early. Payday loans are typically taken out over short terms, which means that the APR doesn’t give a fair reflection of the amount of interest that’s paid.
  • Payment Fees: The fees can be charged for either completely missing a payment or being late with a payment, such as £20 for every payment you miss. Payday loan lenders can also report missed payments to credit agencies, which can make it more challenging for you to apply for credit in the future.

What Are the Payday Loan Laws?

The rules governing payday loans in the UK underwent significant changes in 1st April 2015, which is why it is crucial to understand what happened before this date as well as after this date.

The Rules Prior to 1st April 2015

Prior to 1st April 2015, there were technically no regulatory rules governing lending. Payday loan companies were free to charge whatever rates they chose, free from any set regulations for determining the affordability of buyers.

The unfortunate consequence of this was that loans were approved for thousands of borrowers. These borrowers simply could not afford the loans and who should not have been given the loans in the first place.

That said, The Consumer Credit Act of 1974 required payday loan lenders to consider the “creditworthiness” of applicants. For the longest time, lenders justified their actions by claiming that this was different from assessing “affordability”, which is why they did not undertake the affordability they should have.

The Rules after 1st April 2015

The Office of Fair Trading intervened after an outcry from members of the public and conducted an investigation. Changes also occurred, and the Financial Conduct Authority (FCA) became the industry regulator.

The FCA quickly set out rules that payday loan lenders were required to adhere. The rules came into effect on April 1st 2015. In brief, the rules require those payday loan lenders:

  • Never charge borrowers more than double the original amount of the loan
  • Set the daily interest at a maximum of 0.8 per cent (i.e. 80p of interest for every £100 per day)
  • Never charge late payment fees or default fees larger than £15
  • Must display a new risk warning on all non-electronic media and electronic communications
  • Can only allow borrowers to roll over their loans a maximum of 3 times
  • Must offer borrowers information on how to get debt advice before rolling over a loan or refinancing
  • Can no longer collect part payments by Continuous Payment Authority (CPA) if the full amount is not available. (CPA allows lenders to take money from a borrower’s account directly).
  • Can only make two failed CPA attempts. The lender is required to contact the customer after two attempts.

Where Did Payday Loan Lenders Go Wrong?

You might assume that the payday loans industry decided to streamline its operations, especially after the FCA spelt out rules that govern borrowing. However, you would be wrong.

The payday loans industry has consistently failed to practice responsible lending, and this has led to the misery of thousands of individuals around the UK. Excessive fees and interest have left borrowers with no option but to take out more loans, ‘roll over’ their existing loans, or to service their current debt.

Payday loan lenders take out money from the accounts of borrowers without permission. They also harass borrowers by SMS, phone, as well as using fake legal letters and fail to clearly explain the loan terms, interest rates, or penalty fees to borrowers.

If any of this sounds familiar to you, read on since you may be able to get back your money.

Can I Get Money Back From Payday Loans Lenders?

If you have taken out a payday loan, and hard a difficult time paying it back, the loan could have been unaffordable. You have the right to complain and ask the lender to refund you that money. If you succeed, you can have the loan wiped from your credit file. It won’t affect your credit rating.

The complaint will have a higher chance of succeeding if:

  • The lender offered you a loan without performing checks, if you had to borrow elsewhere to pay off the loan, or if you had multiple payday loans
  • You had a hard time paying other bills such as rent, electricity, and council tax, or you had to go without food to pay back the loan
  • You weren’t able to pay back the loan within one month, the loan amounts kept increasing, or you were late with payments

What Are Payday Loan Claims?

Payday Loans ClaimsA payday loan claim is essentially a lawsuit or complaint alleging that a payday loan lender failed to perform sufficient affordability checks, which led to sustained borrowing. You can claim back the fees charged by the lender, 8 per cent interest, and ask for the mis-sold loan to be taken off your credit records.

How Do You Make a Payday Loan Claim?

You have two options when it comes to making payday loan claims:

1. Ask the Payday Loan Company Directly for a Refund

It might sound daunting to have to deal with loan refunds yourself, but it isn’t something you should worry about. Payday loans are currently under the spotlight when it comes to mis-sold loans, which means that every interaction they have with customers that might have been mis-sold has to be fairly and carefully handled.

All you need to do is contact the payday loan lender directly and ask for a refund. You should put this in writing. In the letter, you should provide details of the amount that you borrowed, the start and end date, your household expenses at the time you were applying for the loan, as well as the difficulty you had when trying to pay back the loan.

If you are not satisfied with the response from the payday loan company, you should consider contacting the financial ombudsman. You can use the online complaints procedure, and the ombudsman will let you know whether you have a case, in their opinion — the information you provide them to help them make an informed decision.

2. Use No-Win No-Fee Solicitors to Make Your Claim

If you don’t like the idea of contacting payday loan companies directly to ask for a refund, you should consider using solicitors to make a claim. The great thing about no-win-no-fee solicitors is that you won’t have to pay any upfront fees or costs. Instead, you will only be required to pay a percentage of your compensation payment if the claim is successful.

The reason why you might consider using solicitors to make your claim is their success rate is incredibly high. Since the no-win-no-fee solicitors aren’t able to charge fees in case they lose, they will be quite confident of success before actually accepting your case. They are also able to negotiate a higher level of compensation.

The solicitor will:

  • Correspond with the payday loan company to secure your refund
  • Draft letters in the form prescribed by the specific payday lender
  • Prepare all the evidence required to support your claim
  • Check all details of the loan you took out to look for any evidence of mis-selling
  • Confirm whether or not you were the victim of mis-selling by a payday loan lender

How Long Does It Take to Get a Refund?

On average, you can expect the solicitors to obtain refunds in about eight weeks. Eight weeks here refers to the time from starting the claims process to receiving the refund in your account.

The amount of time the process takes depends on the lender as well as the facts of the case. Some of the lenders are quite cooperative and process refunds quickly. Other lenders, on the other hand, have been known to drag out the entire process by requesting additional information, responding slowly, or rejecting valid claims outright.

If a lender refuses your claim, the solicitor will take your case to the Financial Ombudsman. The complaints process will still probably result in a successful refund, but you can generally expect it to take longer to complete.

Does PPI Apply to Payday Loans?

The rapid rise in payday loan claims coincided with the time when PPI claims were coming to an end. August 29th 2019 was the date set by the FCA as a cut-off date for consumers to contact their banks regarding PPI claims.

Now that the cut-off date has long passed, PPI claim companies are slowly turning their attention to the next claims sector to capitalise. With the increasing focus on payday loan lenders, this could provide a viable alternative for claims management companies.

PPI companies are likely to strategically start turning to payday claims as an alternative to PPI. So, to answer the question – yes, while PPI previously had nothing to do with payday loans, it will soon have everything to do with payday loans.

You Deserve Fair Treatment

If you have applied for a payday loan, you are one of the millions of people each year that have a difficult time paying what they owe, and you deserve fair treatment regardless of what you owe or to who you owe it. If you believe that a payday loan lender mis-sold a loan to you, you can file a complaint with a compensation claim solicitor.

Pursuing a complaint against a payday loan lender will not affect your credit rating or record and won’t prevent you from accessing other financial products in the future. It might help other people from being mis-sold payday loans or dealing with unfair companies.

So, make the wise decision today and find a no-win-no-fee solicitor to help you file a payday loan claim.