If you have ever taken out a quick payday loan – or other short-term credit option – then you could be due compensation. A recent surge in the number of complaints against payday lenders has caused the Financial Conduct Authority (FCA) to step in an provide guidance for payday lenders – in no uncertain terms – when it comes to responding to these complaints. That guidance requires payday lenders to speed up responses to complaints – and make compensation payments. So, if you’re one of those who feel you have been mis-sold one of these expensive loans, you should be able to get your compensation quickly.
Payday loans – where are we now?
According to figures from the Financial Ombudsman, the number of complaints about payday loans has rocketed. In fact, in the year to March 2017 there was a 178% increase in complaints and a payday lender was the most complained about firm in the finance sector. Complaints against CashEuroNet, which owns Quick Quid and Pounds To Pocket, trebled in the first half of this year, making it the most prominent complained about company. Not only are complaints higher but the number of complaints being upheld has been increasing too. More than two thirds of complaints made to the Financial Ombudsman about payday lenders were upheld. 72% of complaints made against Wonga were upheld and 69% against Quick Quid. When compared to the number of complaints upheld against non-payday lender Barclays (28%) these figures are incredibly high.
The FCA’s response
The FCA has taken an uncompromising approach to the payday loans industry, insisting that compensation payments should be brought forward even if doing so threatens the lender with bankruptcy. In the light of Wonga’s collapse earlier this year, that’s a very real possibility for many payday lenders to consider. The main reason Wonga gave for its collapse was the significant increase in the number of mis-selling claims against it. While the lending giant blamed claims companies for its issues, the practices that caused the complaints were clearly problematic. In the light of this – and the ever-increasing number of complaints – the FCA has said that payday lenders must contact customers about potential compensation if the creditworthiness assessments that were carried out were not compliant. So, the FCA wants payday lenders to be proactive where there could be significant “detriment” to customers as a result of past lending practices. This could even involve contacting customers who have not yet complained.
What makes a creditworthiness assessment compliant?
According to the FCA, a payday loans lender must “make a creditworthiness assessment and the assessment should include the lender taking reasonable steps to assess the customer’s ability to meet repayments in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences.”
Essentially, this means that the payday loan must have been assessed by the lender as affordable for the borrower. “Affordable” means that you can pay it off the following month as well as covering all your other outgoings at the same time. An indication that the loan was not affordable would be where the borrower made a late payment or was not able to cover the cost of repaying the loan as well as other outgoings, such as rent and bills.
What compensation is available and how do you get it?
A successful claim for compensation will mean all interest and charges on the payday loan get repaid, plus statutory interest of 8%. Any loans deemed unaffordable will also be removed from your credit history. If you believe that you have been treated unfairly by a payday lender and you want to make a claim then you should:
- Gather all the information you need. For example, you’ll need to find account numbers, dates and the number of loans you had. Look at your bank statements and credit report to find the right details.
- Identify why your loan was unaffordable. You’ll need to establish how much your other total commitments were first to show why the loan repayments were not affordable to you. Factor in everything, from household bills, to shopping and travel. The more obvious the lack of affordability is, the quicker your claim will be processed.
- Put it in writing. You will need to create a letter to go to each lender. This should state that you believe you have been treated unfairly and that your loan was unaffordable – and why. Make sure you say that you’re looking for a refund of all interest and charges, plus the 8% statutory interest.
- Your lender has eight weeks to reply to your claim. You may get an offer of compensation in that time (especially now that the FCA has intervened). Be wary of being offered a “gesture of goodwill” payment, as this is unlikely to be the full amount you’re owed.
- Ask the Financial Ombudsman to investigate the complaint. If you’re not happy with what you’ve been offered then you can refer your complaint to the Financial Ombudsman who can make a financial award in your favour.
- A simple guide to the Consumer Credit Act
- How to make a complaint to a financial organisation
- All about your consumer right to claim compensation