This often led to customers having to take out another payday loan to get the interest and charges paid off for the original. Ultimately this has left many people in a never-ending loop of debt.
Many customers have had success in reclaiming their money for being mis-sold payday loans, and in many cases, loans were mis-sold to people without them even realising. The Office of Fair Trading (OFT) has shut down many lenders over the past few years and has referred the industry to the Competition Commission, which will continue to insist improvements are to be made.
If you are unsure of how payday loans operate from a legal point of view, or if you believe you may have been mistreated when using a payday loan company, please read our guide below.
How do payday loans work?
Payday loans are an expensive way to borrow money in the short-term, designed to mainly tide people over until payday. The money is deposited straight into the customer’s bank account, and on the repayment date, the loan must be repaid along with interest and charges.
They are expensive for small amounts of money. Annual percentage rates (APR) on payday loans are huge – Wonga, before they ceased offering loans, quoted a representative APR of 5,853%. Costs can become particularly large if you fail to repay the loan on time; however, the overall cost is capped by law, under rules made by the Financial Conduct Authority (FCA).
Payday lenders are now limited to charging an interest rate of no more than 0.8% per day. This includes any fees and is based on the amount you’ve borrowed. If you are being charged more than this, then you can make a complaint.
All payday loan providers are regulated by the Financial Conduct Authority (FCA); however, that does not mean that there isn’t a possibility that you’ve been mis-sold a loan in the past.
How much can you borrow from a payday loan lender?
Most payday loan lenders will offer amounts up to £1,000, and some providers will restrict the amount you can borrow if it’s your first time using them.
The loan period can start from less than a week and will most commonly last for a month; however, most lenders will allow for borrowing over several months. Whilst there are not usually any early repayment charges, the total amount to be repaid will include setup fees and interest – which is generally calculated daily.
How do I check if I was mis-sold a payday loan?
As part of the Good Practice Customer Charter and the rules imposed by the Financial Conduct Authority (FCA), payday loan companies are required to check your finances to make sure that you will be able to afford to repay the loan. They should also provide you will all the necessary information relating to interest and charges before you take out a loan.
If they have failed to do this, then you have reasonable grounds to make a complaint and potentially receive a refund.
The Financial Ombudsman Service (FOS) said it received 17,256 complaints about payday loan lenders in 2017 and upheld 61% of complaints received.
As long as you complain within six years of taking out the loan, you can claim a refund, regardless of if you’ve already paid it off or not. If you have taken out a payday loan in the last six years, you should consider whether you fall into one of these categories:
- The payday loan company didn’t make it clear how much they would charge you in total to repay the loan. They should have given you a clear example of the price for each £100 borrowed, including interest and charges.
- It wasn’t clear or no accurate information was given about when and how you had to pay back the loan
- The payday loan company didn’t sufficiently check your finances to make sure you could pay back the loan.
- The lender didn’t make it clear that a payday loan isn’t a solution for long-term borrowing or if you are in a difficult financial situation.
- The lender didn’t make it clear what you should do if you had a complaint
- The lender didn’t make clear to you how continuous payment authority (CPA) works
- The CPA didn’t make it clear that it was going to take money from your account
- The payday loan company didn’t include a risk warning about late repayment in its online advert, or in an advert that was sent to you by email or text message
How to get a payday loan refund
If you were mis-sold a payday loan or multiple loans, and they cost so much that you had to continue borrowing more money, then you have a good chance of a gaining a refund.
Many websites will offer a template letter that you can send directly to the lender; however, the process is quite straightforward. This letter or email should include the reason why you believe you were mis-sold, bank statements that clearly show a list of your loans and any supporting information.
- Include your name, address, and customer number or account number if you know it. If you are unsure of your account number, state your date of birth and the email address at the time you borrowed any money
- State the reason you believe you were mis-sold, such as unaffordable charges or lack of information.
The most common reason for payday loan mis-selling has been unaffordability. This relates to the lack of a thorough credit check before lending the customer money, resulting in late repayments or continuous borrowing to pay off building interest rates and debt. If you can build a strong case for unaffordability which includes all the payday loans you took out, your income and expenses (including your rent, utility bills, insurance, council tax, supermarket shopping, childcare, clothing, other debts etc.), you have a far better chance at getting a successful refund.
Following submitting your complaint to the payday loan lender directly if you receive no response after 8 weeks, you have the right to bring a case to the ombudsman to try to settle your complaint. The payday loan company should respond with a final decision to you within eight weeks, or have issued you with a final deadlock letter before then if the situation cannot be resolved.
We advise that you let us help you lodge your complaint. We can make the process as smooth and as stress-free as possible, as well as giving you the best possible chance for payday loan refund success.
Whether settled via the FOS or with the lender directly, you should get a full refund of interest and charges paid plus statutory interest of 8%. On top of this, “unaffordable” loans will also be deleted from your credit record.
One of the major payday loan providers, Wonga, went into administration on 30th August 2018. They received a barrage of complaints and criticism over their high-interest charges and were accused of targeting those in vulnerable financial and personal circumstances.
At that time, there were over 200,000 people with active loans, 24,000 affordability complaints awaiting a decision by Wonga and 9,500 complaints against Wonga with the Financial Ombudsman. Many of the payday loan complaints were related to money borrowed before 2014. In 2014, Wonga completely restructured their management team and wrote off £220 million-worth of debt after admitting they had offered loans to people who could not afford to repay them.
Following the company going into administration, there have been 200-500 claims a day received by Grant Thornton, the administration company.
The Financial Ombudsman Service has now referred all Wonga complaints back to the administrators.
The administrators are encouraging anyone who believes they have been mis-sold to make a formal complaint directly with them, stating:
If you have a complaint about being mis-sold a loan and think you are owed some money, then you should make a complaint as you might be entitled to claim a refund…
If you would like to make a complaint now and have not received any communications from Wonga, the Administrators would encourage you to contact Wonga
Whether you have an old loan or have borrowed from Wonga in the past couple of years, you could be entitled to a refund and compensation.
However, the administration company have stated that it’s highly unlikely that customers will receive the full amount of an agreed refund. Wonga has also been seen offering payments of ‘good will’ for some complaints, which are often far less than what should be fully owed.
If you receive an offer of payment that is far less than expected, you should investigate whether this is the total amount you are owed before you sign any documents. Upon accepting the money, your claim will be legally closed.
If you believe you have been mis-sold a payday loan by Wonga, you should act as soon as possible. Please note that due to the sheer volume of complaints currently being handled by the administration company, Grant Thornton, that there may be a long waiting period before you receive any response or refund. But don’t let this put you off.