Payday Loan Refunds – Everything You Need to Know
Have you ever borrowed through a payday loan company? Do you owe money to payday lenders at the moment?
If the answer is yes, you may not realise that you could be entitled to a part or full refund of the money you’ve been charged. In rare cases, the payday loan debt is written off altogether.
In this article, we’ll explain what payday loan refunds are, why you might be entitled to one – and, if you think you are, how you would go about pursuing a refund – and where you could get support from.
What exactly are payday loans?
There’s a good chance you’ve seen advertising for payday loans – whether it’s on TV, while you’re browsing the internet – or even in shop windows and on posters.
A payday loan is intended to be short-term borrowing that’s used for unexpected expenses. In reality, the majority of payday loan debts aren’t used in this way – and that’s where problems occur.
If you’ve used a payday loan to cover the shopping, phone bills, rent – or even the repayments on another payday loan – you’re very definitely not alone. In fact, out of thousands of people who took part in a financial study last year, around seven out of 10 said that their most recent loan was to cover normal life expenses or other payday loan debts.
The rules that surround the finance industry make it clear that any kind of lending should only be offered if the borrower has the ability to pay back the amount borrowed – and as many people turn to payday lenders because they simply cannot afford life expenses, the evidence would suggest many of those people aren’t going to be able to consistently make loan repayments either…
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If you’ve ever taken a payday loan to pay off another, again, you’re in a similar position to millions of other people in the UK.
In fact, last year’s study also shows that three out of four payday loan borrowers will take at least one more loan in the same year – and that those borrowers will, on average, take six different payday loans across any 12-month periods.
While a short-term loan can be useful to help you get to your next payday, the fact that you now have another outgoing the following month can make reaching the next payday even more tricky. With more to pay next month, it’s easy for people to find themselves in a difficult situation, struggling to pay back their debt because more and more of their outgoings are taken up with payday loan repayments. This can in turn have a negative impact on your credit score and credit rating.
Are you entitled to a payday loan refund?
To work out if you might be eligible for a payday loan refund you simply need to ask yourself a few questions.
The first one is simple:
Have you had a payday loan in the last eight years?
The chances are the term ‘payday loan’ was used when you applied for or discussed the loan, but even if it wasn’t, you could still have had a payday loan. If you remember dealing with a company like Wonga, QuickQuid, Sunny, The Money Shop, Pounds to Pocket, My Jar, Peachy or Payday UK you may well have had a payday loan.
If you’re not sure, check back over old bank statements – a quick Google search of any loan company names you’re not sure of will help you work out if you’ve borrowed from payday lenders.
Assuming you’ve borrowed from a payday lender, you then need to consider:
Was the loan ‘rolled’ from month to month?
‘Rolling’ a loan simply means that it has not been paid off after the intended period – so, if you borrowed £200 but could only afford to repay £100 after your next payday, the chances are the lender would have extended the time you had to pay it off – while also adding significant charges for doing so.
If this has happened, the lender you borrowed from should perform an ‘affordability check’ each month – i.e. an assessment of your incomings and outgoings to check if you can afford the continued credit agreement they’re tying you into.
Often, payday lenders do not perform these checks, so people who cannot afford the loan continue to accrue charges – often ending up owing more than was ever intended and becoming victims of irresponsible lending.
Did you have more than one payday loan at the same time?
Again, similar to rolling loans month to month, potential lenders are expected to look at all your outgoings when they assess you for a further payday loan, including other payday loans – and loans that are being rolled from previous months.
Without this full assessment, a lender cannot decide whether you can afford to repay the loan.
If you’ve struggled with payday loan repayments and the answer to either of these additional questions is yes, there’s a strong possibility that you’d be entitled to a full or part refund from the lender, at least for the charges that you paid.
While these are the most common issues that come up for borrowers who’ve used payday loans, they’re not the only ones. We’ll take a closer look at how lenders should treat you.
Did you ask for help?
Some people hesitate to pursue payday loan refunds because they asked for help from a payday lender but didn’t receive it – or didn’t get the right kind of help.
The Financial Ombudsman Service (FOS) is the organisation who ensure any company offering financial services (including payday loans) treats their customers appropriately. They state that payday lenders have a responsibility to respond fairly if someone contacts them explaining they are struggling to pay.
Responding fairly would usually mean freezing the interest that’s building up on the amount borrowed – and often organising smaller payments you’re able to afford to repay.
If you’ve discussed having troubles repaying your loan with your lender and they haven’t offered any help – or they’ve delayed getting back to you (meaning you’re charged more interest in the meantime) this could be further evidence that you’re due a refund.
Are you struggling to pay?
Missed payments are a lucrative source of income for payday lenders. If you’ve missed a repayment or asked that your loan is rolled into the next month, you’ll be well aware that the penalty charged can be quite high.
Missed payments and requests to extend the loan should be indications to the lender that you’re struggling to pay – and they should offer to help. However, more often than not, lenders have not helped – simply continuing to add charges.
Even if you haven’t asked for help – that doesn’t mean you didn’t need it – and as a result, you could argue you have been the victim of irresponsible lending and may be entitled to some or all of these charges refunding.
Did you have a Continuous Payment Authority set up?
A ‘Continuous Payment Authority’ or CPA for short, is a type of repayment method that most payday lenders use.
When you give authority for a payday loan company to use a CPA, it means they can attempt to take payment from your account without seeking authorisation from you each time – even if the amount differs. In some instances, payday lenders will try to take a large amount that includes additional charges for rolling or missing payments – sometimes leaving you short.
Even if the lender can’t take a large full amount, they have been known to try to take smaller amounts – sometimes multiple times, again, potentially leaving you short for other bills and living expenses.
A continuous payment authority isn’t necessarily bad (especially as it doesn’t leave you with bank charges if payments are unsuccessful) – but can often be used by lenders seeking repayment in a way that makes it very difficult to manage your money, especially if you’re struggling already.
If you think a payday lender has misused a CPA or failed to explain how it will work, it can be further evidence to suggest you couldn’t afford the loan and may be due a loan refund.
Could you afford the loan in the first place?
Getting into money trouble is far more common than you might think – but that doesn’t stop people feeling embarrassed that they can’t afford their day-to-day expenses. For some people a payday loan seems like the only way to make ends meet, and sometimes prevents the need for admitting to anyone else that you need help.
A payday loan can look like an attractive way of handling your short-term money issues – even if deep down you know you could struggle to afford to repay. While payday lenders should perform checks that pick up on affordability issues, these checks aren’t always sufficient, meaning you could have been given a loan you just cannot afford.
Some people are embarrassed to put their hand up and admit that this has been the case – but if this situation sounds familiar, don’t worry – it is not your responsibility to check affordability; it’s the lenders – and if they haven’t, it could be evidence that your borrowing has not been handled properly and that you’re entitled to a loan refund. If you feel you have been mis sold or treated unfairly you are able to make a case that a payday loan company has been an irresponsible lender.
The changing face of payday loans
While TV and internet adverts have always made payday loans look helpful, harmless and friendly – the truth has often been quite different.
Prior to 2015, there were no rules around the amount of interest that could be charged, the amount of fees that could be added to a borrower’s account or the size of those fees – but that’s different now.
To avoid being accused of irresponsible lending, payday lenders must adhere to the following rules:
- Lenders now have limit of 0.8% of the amount borrowed that they can charge as interest each day. They shouldn’t be charging you more.
- Lenders are now banned from expecting you to pay back more than 100% of the amount you borrowed – so, if you’ve borrowed £100, you should not be paying back more than £200.
- There is now a limit on the amount that can be charged for defaulting (failing to keep up payments) on the loan. That limit should not be more than £15.
Even though these controls are in place, that doesn’t always mean payday lenders get it right – and it doesn’t mean that they acted fairly if they charged you more prior to 2015.
Getting a payday loan refund
If anything we’ve covered here looks or sounds familiar there’s a good chance you could pursue a claim against the lender or lenders you’ve used – but how would you go about it? There are two main options that people chose from:
Option 1 – Use a payday loan refund service
There are plenty of companies who’ll pursue a payday loan company on your behalf if they think you’ve been unfairly treated or mis sold a product. They’d require a detailed conversation with you about your financial circumstances, the products you’ve used and the repayments you’ve made.
From here, they’ll talk to lenders on your behalf – putting together enough information to decide whether or not you were mis sold your payday loan or whether you were treated unfairly. If they decide you were, they’ll pursue the lender(s) for you.
Companies who offer this service do so on a ‘no win no fee’ basis, meaning that it won’t cost you anything if they don’t recover any money for you – but they can take quite a large chunk of any refund you do get – usually around £35-£40 out of every £100 you’re awarded.
Option 2 – Engage with payday loan companies yourself
Dealing with loan refunds yourself might sound daunting – but try not to worry, the companies you’ll be dealing with are currently under the spotlight, so every interaction they have with customers who might have been mis-sold needs to be carefully and fairly handled.
We’ve put together a simple, step-by-step guide that’ll help:
Step 1 – Gather your information
The first thing to do is collect any information you can that relates to your payday loans debts. If you have paperwork you’ve been sent and the loan agreements you signed, that’s a great start. It’s also worth having copies of your bank statements from the time too.
If you don’t have this information, you should request it. You bank and any payday lenders should send you anything you request. Keep copies of all the letters and requests you send in case you need to follow them up.
Step 2 – Look at where problems occurred
Which parts of this guide have made you think you could be due a loan refund? It’s important to consider them all to ensure you haven’t been mis sold and the victim of irresponsible lending:
- Was your payday loan rolled without proper affordability checks?
- Did you fully understand the loan you were taking out?
- Were you forced to take more payday loans to cover repayments?
- Did payday lenders offer the right kind of help if you asked?
- Did you struggle to pay?
- Do you feel a CPA was misused or not explained fully?
Where possible, look at being able to evidence what’s gone wrong. If there have been times you’ve struggled, missed other payments and had payments rolled, mark down all the relevant dates and make notes about what happened.
Step 3 – Write letters to the companies involved
Rather than speak to payday lenders on the phone, it’s worth detailing your complaint in a letter, that way you can make sure you’ve covered everything – and have something to reference back to every step of the way.
Your letter should detail the following:
- The fact that you want to make a complaint and details of the payday loan agreement(s) that it relates to.
- A simple timeline of events – for example, when you took out the loan, the problems that occurred, the support that you did or didn’t receive – etc.
- Details around any other hardship that you felt as a result of the loan or treatment by the company – for example, details of other bills missed, health issues, family problems – and so forth.
- How you would like them to resolve the issue – for example, paying back additional interest, refunding excessive charges, etc.
- Your intention to speak with the Financial Ombudsman Service (FOS) if they do not resolve your issue satisfactorily within eight weeks.
- If you’re not totally confident that your letter covers everything you’ve experienced, or you’d just like to run it past someone who understands the payday loan complaints procedure, consider contacting your local Citizen’s Advice service. You can talk to someone on the phone, by email – or even arrange an appointment to see someone in person.
Step 4 – Speaking to the Financial Ombudsman Service (FOS)
If your complaint has not been handled appropriately by the company you’re pursuing, you’re entitled to make a complaint to the Financial Ombudsman Service (FOS). By doing so, you give the Ombudsman the right to act on your behalf. Remember to keep copies of everything you’ve sent and details of telephone calls if you’ve made or received them.
You’ll get to speak to someone who’s extremely well experiencing in handling issues with payday lenders – and they’ll aim to have your complaint resolved promptly and with minimum additional input from you. You can speak to them on 0300 123 9 123 or 0800 023 4567 – or find details of how to make a complaint at www.financial-ombudsman.org.uk
You deserve to be treated fairly
Remember, you’re not alone having used payday loans – millions of people every year struggle to pay what they owe – and you should be dealt with fairly regardless of what you owe or who you owe it to.
Pursuing a complaint against a payday lender won’t have any impact on your credit rating or credit record – it won’t affect your ability to get loans or other financial products in the future. In fact, the action you take today might even help other people avoid dealing with unfair companies in the future or being mis sold payday loan debts.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0800 118 4815.Get help with payday loan debts