The once thriving payday loan industry in the UK is on the verge of collapse following the recent rise in compensation claims, reports the Prague Post.
Although the industry was once worth around £2 billion in 2013, it has recently seen a huge overhaul following the introduction of stricter regulation by the FCA which has included a daily price cap of 0.8% on the interest charged.
Ex-customers who believe that they were mis-sold payday loans are now claiming a refund on their loan and interest repayments. The average settlement is around £300 from high street lenders plus around £500 paid to the Financial Ombudsman to cover any administration costs. With some of the industry’s biggest names coming under fire, we review how this will have a significant impact on the industry.
Why would a customer claim compensation?
Those applying for payday loans commonly using the finance for emergency purposes and to tide them over until the following month. This can sometimes appeal to the most vulnerable in society who live from pay cheque to pay cheque. Through payday loans, they may find no alternative to paying high rates of interest on their loans.
While 1.2 million payday loans were issued last year, there is commonly around 10-15% of customers who are unable to pay them back, and this will result in extra charges such as default fees of up to £15, extensions and more interest accumulated before they are able to pay off their loan eventually.
For compensation claims, former customers have a strong case if they defaulted on a loan and were subject to extra fees under the impression that they were not fit to receive a loan, to begin with. This could be due to being unemployed, on benefits or having poor credit ratings including recent CCJs or IVAs. (Source: PaydayBadCredit)
Under these circumstances, such customers might have slipped through the net still be due to a lack of checks by lenders or because the lender wanted them to ramp up extra fees – and if this is the case, they may have the right to claim compensation.
Some lenders are not offering loans
Two of the industry’s biggest lenders are facing such an influx of compensation claims that as of September 2018, they are no longer offering loans. The lenders Wonga and The Money Shop have put messages on their websites stating that they are not accepting new applications. However, existing customers must continue to repay their loans on time and as per the original agreement.
How to make a complaint?
If you are looking to complain about a payday lender or request compensation, you have to start with the Financial Ombudsman Service and see if your reason for a refund meets a valid reason for complaint.
You will then need to compile a list of evidence including any documentation and correspondence with the lender and submit a formalise complaint form.
You should then expect an acknowledgement of your complaint within a few days and a formal response within a maximum of 8 weeks.