Can I Make a Claim Against a Payday Lender?

Payday loans have been in the headlines for several years, with warnings over the excessive interest rates and fees that these lenders charge to those who need to desperately access money. Usually taken out by those who have poor or no credit rating, payday loans promise short term solutions to cash flow problems.

However, the sad reality is that the enormous sums of interest that are charged by the lenders and the necessity to repay within a short space of time, many borrowers find themselves worse off for having to take out the loan. It is with this knowledge that many lenders are now being forced to review their practices and make, in some cases, huge repayments to previous customers.

The following guide explains more about payday loans and who can make a claim against a payday lender.

What is a payday loan and why are they so bad?

Payday loans are smaller personal loans that usually range between £100 - £1,500 and are required to be repaid on or by the borrower's next payday. The borrower will take out the loan and give their payment card details at the point of application. Then, on the next payday, the lender will take repayment of the loan along with any fees and interest.

Lenders were (and some still are) giving out loans far too easily, without carrying out proper checks for affordability and need of the applicant. This means that several borrowers found themselves unable to meet the repayment amounts and deadlines and so incurred additional charges and ongoing interest or borrowed more to meet repayments. This has left thousands of customers in significant amounts of debt and in a horrendous cycle of being unable to claw their way out.

How do I know if I was mis-sold a payday loan?

Lenders are obliged, as per the Good Practice Customer Charter as well as rules set out by the Financial Conduct Authority (FCA), to check whether you are able to afford to take the loan and meet the repayments without it having a significant negative impact on your financial well being. The lender is required to take information relating to your income, pay frequency, outgoings, need for the loan and ability to repay. This information should then be used by the lender to determine whether it is responsible for them to offer you a loan. If you took out a payday loan and the lender did not meet these actions, you will be eligible to make a claim against them.

In simple terms, if you believe that the payday lender should never have given you the loan in the first place, you will be entitled to make a complaint. For example, if it was not realistic for you to repay the loan without suffering further financial difficulties, you will have grounds to argue that you were mis-sold the loan.

What to Know Before Making a Claim Against Payday Lenders

In order to make a claim against a payday lender, you must do so within six years of taking out the loan, whether you have paid it off or not. The Financial Ombudsman will be able to review your case if your loan or loans are over six years old to determine whether you are still able to proceed with your complaint.

There are a number of reasons why it might be decided you were mis-sold a payday loan. They include:

• The lender did not make it clear to you how much the loan would cost. The lender should have set out the cost in easily accessible and understandable terms such as outlining the cost of borrowing per £100.
• You were not sure of how much the fees and interest on the loan would be.
• You received unclear or inaccurate information about when you needed to pay the loan back and how to make the repayment.
• The lender did not make adequate checks or take sufficient information from you to determine your eligibility for a loan.
• The lender gave the loan when you were not in a position to be able to afford to make the repayments.
• You were not told that payday loans should be used as a short-term solution to financial difficulties only.
• You were not told about the penalties for late or missed payments on your loan.

You can also make a claim against the payday lender if you had problems meeting the repayments of the loan and they:

• Did not treat your difficulties in a sympathetic and positive manner.
• Did not offer to freeze interest and charges in order to help you become more likely to repay the loan.
• Made you feel pressured into making payments or taking out an extension on the loan.
• Did not give you information and warnings about extending your loan.
• Didn't provide adequate information relating to the costs associated with extending the loan.
• Did not complete a further review of your financial circumstances to determine the best way to help you overcome your problems with repayment.

If I make a successful claim, how much can I expect to be paid?

When you make a claim against a payday lender, the result should be that you are put back in a position that you would have been if you had received fair and responsible treatment from them in the first place. This means that some claimants have successfully claimed thousands of pounds.

The lender should refund you all of the interest, charges and fees that you incurred through the loan. It is unlikely that you will be refunded the loan amount too but some lenders will go this far if it can be demonstrated that they worked outside of the law and outside of fair boundaries.