Mis-sold Pay Day Loans

What is a Pay Day Loan (PDL)?

Pay Day Loans grew in prominence following the credit-crunch, where many high-street lenders tightened up their lending criteria meaning it became increasingly difficult to borrow. Sensing a gap in the market, many companies took to a short-term lending solution for consumers.

Typically aimed at those with previous credit difficulties, a Pay Day Loan enables borrowers to secure a quick cash solution (sometimes within the hour) to their money problems, helping to ‘bridge the gap’ to their next pay day, when they would be able to repay the loan in full.


Why does a PDL mis-selling occur?

Due to astronomic interest rates, (sometimes over 4,000% APR) Pay Day Loans should only be viewed as a short term solution, as extended over a longer term such high interest rates could lead to you repaying the loan many times over, leaving you in a worse financial position than before you took the loan.

Many unfortunate consumers became trapped in a debt spiral, refinancing or topping up month on month simply to re-pay their previous loan, with no real end in sight. Until 1 April 2014, all Pay Day Lenders were obliged to act in accordance with the Consumer Credit Act 1974 (from 1 April 2014 the Financial Conduct Authority have made lenders adhere to similar standards) which placed an obligation on lenders to ensure that borrowing was suitable for a customer and as such had to take steps to undertake an Assessment of Affordability.

Where this did not take place, or where out of date or insufficient information was relied upon, the loan itself may have been mis-sold. The Office of Fair Trading dealt with this within their guidance on “Irresponsible Lending”. Where a lender is, or should be aware of a consumer being reliant on credit to make repayments, good practice dictates that they should not continue to lend to that customer - failure to spot such a pattern can be construed as irresponsible lending, and as such, mis-selling.


Reasons for mis-sale

If a lender failed to ascertain your affordability at the time, or allowed you to refinance or roll-over loans frequently, this ought to have acted as a flag to the Pay Day Lender that the loan may have been unaffordable.

Signs that your PDL may have been mis-sold are:

  • You borrowed money frequently from the Pay Day Lender and rolled loans over or refinanced
  • You had taken loans from more than 1 Pay Day Lender
  • You missed payments and received charges
  • You were finding it hard to meet your everyday living costs as a result of repaying loans
  • You missed payments to household bills
  • You struggled to pay your other debts
  • You entered into a Debt Solution such as a Debt Management Plan or IVA

If any of these apply to you, it is very possible that the loan was mis-sold.


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