It looks as though payday loans are becoming the new PPI in that many people have been mis-sold it and are seeking compensation as a result. You have long been able to get compensation for a mis-sold payday loan, however many people have remained unware of this until the fall of major player, short-term lender Wonga.
Wonga went into administration earlier this year, which was a shock to many people who knew Wonga as the leader in short-term, high-cost credit loans. Wonga famously offered the first 15 minute loans with the offer of a loan lasting 30 days and money approved within 24 hours on any given day a week. Yes, it was convenient but borrowers were being charged interest rates of over 4,000%. This resulted in borrowers often having to take out second loans to pay off the first.
However, ever since the introduction of the FCA in 2014 and the stricter rules they put in place, the industry has been notably cleaned up and Wonga was actually not making any profit and paid out over £200 million in compensation. In fact, Wonga made an active loss of £37 million per annum as of 2014. Losses actually doubled in 2015 to just over £80 million. After losing out on a whopping £65 million in 2016, Wonga had to finally admit that it was in serious financial trouble.
The Financial Conduct Authority urges that payday lenders offer their customers the option of compensation even if it would mean that the lender was threatened with bankruptcy. They stress that it falls on the payday lender to contact their customers if the credit worthiness assessments were not compliant to their guidelines.
When can you claim compensation?
Lenders have a responsibility to be clear with the people they lend to. They have to:
- Make it clear how much it will cost you to repay the loan with the interest and fees
- Check your finances and personal situation to ensure you have to pay back the loan
- Communicate with the borrower to let them know that payday loans should not be used for long term use or if you are in serious financial difficulty.
- Let you know what you have to do if you do find you have a complaint
Thing you can complaint about:
- If your lender did not follow the FCA rules, you can complain to your lender.
- If you had to take out a second or a multiple loan to pay back the initial loan
- If you were given information that was incorrect
- If your lender did not run a creditworthiness test on you or failed to identify your finical difficulties
How to find responsible lenders
Finding responsible lenders in this day and age is not easy. Certainly taking your time and finding the right lender for you and your circumstances can be a sensible approach, rather than jumping at the first lender you see.
Using one of the most established comparison websites in the UK can be a good start, since they will likely be going through rigorous compliance in order to select the lenders that they work with. This includes the likes of Compare the Market, Money.co.uk and Choose Wisely.
Where possible, use the reviews provided and read through what kind of interactions people have had with them. If positive, then you know that you are in a good position to apply and be treated fairly.
Understanding your credit score is also key to determine what you are eligible for. Using free trials with the likes of Noddle, Clearscore and Equifax can be useful to see what kind of loans you are best suited for. You can also request a copy of your credit file for just £2 from the UK government.
If you have good credit, a sensible 0% interest credit card or personal loan can be available at very low rates. For weaker credit scores, you may need to add extra security such as using a guarantor or securing the loan against your property or vehicle.
