Here at the Brixton Advice Centre we think the Financial Conduct Authority’s clampdown on payday lenders is one of the best things they have done in the last couple of years. With shops on every high street and cute cartoon adverts on TV, it was just way too easy to get a loan for more than you could really afford to repay the next month. So next month you took out another loan. And another
We’ve been hearing that some people caught in the payday loan trap are getting a refund if they make a complaint to the payday lender that their loans were unaffordable. We asked Sara, who runs the Debt Camel website, to answer some of our questions about how this works
What does “unaffordable” mean?
The Financial Ombudsman takes a very common sense approach to this. A loan is affordable if you can make the monthly repayment and still be able to pay your other costs that month: rent, bills, transport costs, clothes, food, other debts etc. If repaying that payday loan left you so short of money that you had to borrow again, then the loan wasn’t “affordable”.
So a loan could be unaffordable even if you did repay it on time?
Yes! At first people don’t believe this, but then when they think about their situation, they realise that taking out so many loans meant that they really weren’t affordable. And the payday lenders should have seen all the loans and realised the borrower was in trouble.
How should someone make a complaint?
You email the payday lender. It’s a question of telling your story, you don’t need to use complicated jargon or quote legal regulations. There are some template letters you can use on the Debt Camel payday loan refund page to get you started.
If the lender says “No”, then you then pass your complaint to the Financial Ombudsman, who is upholding many of these complaints. People are finding the Ombudsman’s helpline is very friendly.
Are people getting all their interest repaid?
It does depend on the details of your situation. Sometimes the Ombudsman decides that the first couple of payday loans were “affordable” but tells the lender to refund interest and charges on the rest of the loans.
If there is a refund, you will also get 8% interest added on top and the Ombudsman usually says the payday loans should be deleted from your credit record.
The sort of things the Ombudsman looks for are:
- Did you already have a bad credit record with defaults when the payday lender decided to lend to you?
- Was the amount you were borrowing likely to be difficult to afford on your income?
- Did you keep rolling over loans, or repaying them then borrowing soon after?
If any of these apply to you, it’s worth making a complaint.
What if people still owe money on a loan?
You can still make this sort of complaint about unaffordable lending. Sometimes the lender will write off the balance owed, or some of it, instead of giving you a refund. But if you had a lot of loans that you did repay, you may get the balance written off and a refund for other loans as well.
If you have money problems, taking a payday loan isn’t a good answer. If you are in Lambeth, come and talk to us and get some help