Mis-sold Pay Day Loan FAQs
What is a Pay Day Loan?
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 might a PDL have been mis-sold?
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Where this did not take place, or where out of date or insufficient information was relied upon, the loan itself may have been mis-sold.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.
What is the average compensation paid for a mis-sold Pay Day Loan?
This will depend on how much was taken out, how often it was refinanced and perhaps most importantly, your circumstances at the time of each loan.
How long will it take to receive my compensation?
This will vary from case to case. In some instances, once a claim is submitted, compensation is paid within 2 or 3 months where the lender is quick to respond; in others it could take significantly longer if the complaint is referred to the Financial Ombudsman Service. In our experience the majority of claims are settled within 12 weeks however in all instances, the time it takes will depend on your specific circumstances and most importantly upon the lender.
How much is DRSP’s fee?
DRSP’s fee for any successful claims is 20% plus VAT. This amount is payable on settlement of the claim. This means that for every £100 of financial benefit received a fee of £30 plus £6 VAT is payable.
When a lender makes an offer, it will almost always include statutory interest which is set at 8% annually. This is basically compensation and is included due to the customer being deprived of the money they were paying the premiums for fees.
The statutory interest; due to its compensatory nature is classed as taxable income. Lenders will normally deduct tax (at the basic rate of 20%) from this and they will send it to HMRC automatically. DRSP’s fees are due on the gross offer prior to any deduction of tax.
You are also able to submit a complaint to the financial advisor directly or through the Financial Ombudsman Service if you prefer.
Can I cancel my claim with DRSP?
You can cancel your claim with DRSP at any point although a fee may be payable under Section 8 of our Terms of Business if this is done outside of your 14 day cooling off period which runs from the point your signed Terms of Business are received. Should you wish to cancel, your cancellation does not need to be in writing but a cancellation form is located here should you wish to do so.
What if the lender is no longer trading?
If the lender no longer exists, it is very unlikely a claim will be able to be pursued.
If I do not have all of the documentation from the sale, can I still make a claim?
Absolutely. DRSP will discuss details of the claim with you in full to help understand the nature of the sale and your circumstances at that time. As with most things, the more information you can provide the better your chances are.
Are DRSP authorised to manage my claim for a mis-sold Pay Day Loan?
Yes. DRSP Limited is regulated by the Claims Management Regulator in respect of regulated claims management activities, CRM29438.
To start your claim, either click the Start Claim button or contact us on 0800 849 5078.