It’s not too late to claim a refund and compensation on a payday loan that you found to be unaffordable, even if you have paid it off in full. Making a claim on a short-term loan and loans for people with bad credit is easy and need not cost anything.
Rules around credit facilities mean that loan companies must check that customers will be able to pay them back. For a payday loan, that means they must have assured themselves that a borrower could afford to make the repayment on the date that they next get paid, usually the following month, along with their paying their additional financial commitments such as bills and other debts.
If you found yourself unable to repay a payday loan, rolling over a short-term loan, borrowing additional money to make the repayment or had to take out another loan soon after, then this may mean that the application should not have been approved. Other signs of unaffordable loans could be that you took out multiple loans that were increasing in size or that the loan represented a significant portion of your income.
If that applies to you, you should consider making a complaint and seeking compensation.
What are ‘unaffordable loans’?
Payday loans are intended to be a one-off or infrequent solution to a short-term problem. A few years ago, before the industry became more tightly regulated, some lenders ignored signs that taking out a payday loan would cause customers problems, often significant ones.
The Financial Conduct Authority (FCA) deems that ‘unfair lending’ occurs when loans cannot be repaid without ‘undue difficulty’. This means that a lender must have conducted an affordability assessment. As part of the application process, they should have ensured a customer could make the repayment on time plus meet their other regular commitments without additional problems. This includes rent or mortgage payments, bills and other debts, as well as essentials such as food and transport costs.
Complaints and compensation on payday loans – where to start
If you believe you were treated unfairly by a payday loan company, the best place to start is to establish just what loans you were able to take out. This means pulling together a list. We have a comprehensive guide to finding out your outstanding payday loans but many of those you will want to complain about will be historical ones.
You may be able to remember the details of the short-term loans you had, particularly if you did not have many. However, a lot of people fell into the trap of taking out multiple payday loans over quite a long period of time.
You may be able to contact the lender to find out what accounts you had with them. Alternatively, you may be able to find details on your credit reports. Some lenders did not fully report the details of loans to the credit reference agencies, and you might even notice some loans have been deleted, particularly after you have initiated a complaint. Your bank statements may provide a more comprehensive overview of what payday loans you have taken out in this case. Certainly, using both sources should provide you with the information needed.
If you have an active payday loan and still owe money to a lender, this is the time to stop making any further payments if you cannot afford to do so. Payday loans are usually repaid through a Continuous Payment Authority (CPA). You can read more about CPAs here. You can request that a CPA for a payday loan be stopped by contacting your bank.
Next steps – demonstrate why the payday loans were unaffordable
The stronger your case to show why the payday loans you took out were unaffordable, the better the chance of a lender settling without you needing to go to the Financial Ombudsman. This can save a lot of time if you’re seeking a refund or compensation on a payday loan.
You might be able to simply compare the size of the loan, and the date(s) repayments were due with bank statements from the time you took it out. This might clearly show that you would have been unable to make the repayment after you’d paid all your other bills.
Alternatively, you can demonstrate that a payday loan was not affordable by listing your income and expenses. Write down how much you earned each week or month, then list your outgoings from the time. This should include all of your commitments. It will likely include rent/mortgage, council tax, electricity, gas and water, broadband and phone expenses. Also include insurance, transport costs, food shopping, clothing, childcare and any other debt payments.
How to make a complaint about a payday loan
You will not have to work out the compensation that you consider you might be entitled to. You don’t necessarily even need to identify the loans that you think were unaffordable. The first simple step to take can be to contact the lender(s) and request a refund for all of the loans you have taken out with them.
Write a letter or an email to each lender clearly identifying that you wish to complain that you were given an unaffordable loan. Even if your loan has been passed to a debt collector, your complaint should go to the payday loan company. If you have entered into an arrangement with such a debt collector, it can be a good idea to continue making payments to them. If not, it can be advisable to inform a debt collector that you have raised a complaint to prevent them from taking any further action while it is processed.
Request a refund of the loan plus any interest that was added plus any fees or charges that were accrued. The Financial Ombudsman has also set a statutory rate of 8% interest to be added on top of the figure you have requested.
Also, request that the loan be removed from your credit record, stating that it is having a negative impact on your credit score and harm the chances of you being able to get a loan or other financial products that require a credit check in the future.
There are companies who will take all of your details and handle the complaint for you. However, this isn’t necessary, and they will require a cut of any refund or compensation for doing so.
Payday loan refunds – what happens next
Once you have submitted your payday loan complaint, the lender has eight weeks to respond. Often, when the company responds, they will reject your complaint or make a nominal offer of compensation. You might be happy with the offer, though and be willing to accept it. Bear in mind that if you accept the lender’s response, then that is the end of the matter, and you can’t take it up again at a later date.
If your complaint is rejected or you do not wish to accept an offer, then the next step is to take it to the Financial Ombudsman. Their contact details can be found here. The Financial Ombudsman is free to use, and they have handled thousands of payday loan complaints in recent years, so the process is relatively straightforward. You have six months from the date of the lender’s response to contact the Financial Ombudsman, and you should submit a separate complaint to them for each separate lender.
The Financial Ombudsman will investigate your complaint, and once they have reached a decision, write to both you and the company with details of the action they recommend. If they accept your complaint, then Financial Ombudsman will include what award the lender should grant you.
Need any more help with a payday loan complaint?
If you’ve gathered the information required to make a complaint about a payday loan but require a little extra help to submit it, then the Citizens Advice Bureau is an excellent place to start. There are lots of other specific resources, templates and guides available on the internet to help with payday loan complaints too.