On 24 April 2020 the FCA published its guidance for payday lenders on customers with Coronavirus difficulties.
With other types of credit, customers can have three month payment breaks but interest continues to be added during these breaks. This applies to mortgages, unsecured loans and credit cards, and car finance.
But the FCA has taken a very different approach with payday loans.
The bad news – you can only have a one month payment break, not three months.
The good news:
- the lender can’t add any interest during this time;
- you can then repay the missed month in an affordable way, eg by making smaller payments over several months;
- this won’t affect your credit record.
If your lender says the missed payment will be spread over the rest of the term and doesn’t offer to extend the term, go back to your lender and quote this from the FCA’s guidance:
The firm should allow the customer to repay the deferred payment over such period and in such amount as the customer can reasonably afford, including over a period that extends beyond the original period of the loan.
Why not the normal 3 month break?
The FCA hasn’t said why it has not followed what is now the standard approach for other sorts of credit.
Some of the possible reasons include:
- some payday loans are very short term agreements, only lasting a month;
- feeling it would be unfair to the customer to continue to add the incredibly high levels of payday loan interest for one month, let alone three;
- feeling it would be unfair to the lender to have to provide three months payment breaks with no interest added;
- recognising that many payday loans would hit the price cap very soon in a three month payment break with interest added.
So perhaps “one month, no interest” was seen as a fair compromise.
One month is too short to be of much help!
A few people’s coronavirus problems may be all resolved in a month.
But for a lot of people they won’t be:
- after redundancy it may take time to find another job;
- if you are let out of lockdown, will your company take you off furlough? will your children be back at school?
- if you are self employed, how long will it take to get money coming in again?
Three months feels like a more realistic timescale for a break and to reconsider your position at the end.
After only one month, a lot of people will have no idea when they can start to make the high repayments to payday loans.
So grab the one month break and then ask for more help
If you know you have problems it makes sense to ask for this one month break.
It may well not be long enough, but it’s on offer and there are no downsides to taking it.
Then talk to the lender again after a month.
Unless your coronavirus problems have been sorted, the best thing then could be a payment arrangement:
- you make a lower, affordable payment each month and no more interest is added;
- at the start the affordable payment could be a token £1 a month. then you could later increase that when things return to normal;
- this would affect your credit record but you are then in control of your finances.
If you have a lot of debts, talking to StepChange about a debt management plan may be better than trying to talk to all your lenders.
And if you don’t think things will ever get back to normal, StepChange can help you look at your other options.
Also make an affordability complaint?
Lenders have to consider if a loan is affordable for you – can you repay it without hardship, getting behind with bills or having to borrow again?
If this loan is small and you have only had one or two from the lender, then the lender doesn’t have to check carefully. But if the loan is large or you have borrowed several times from this lender, look at whether you can make an affordability complaint and get a refund of the interest that you have paid. These are described, with a template letter, here: How to ask for a payday loan refund.
You can ask for a payment break now and also put in an affordability complaint. You don’t have to choose which to do.
Caroline Read says
just been reading your comments about this Sara on the BBC article !
Adrian says
Hi Sara,
I’ve requested a one month break from Moneyboat and they have responded with
Payment Holiday Option 1: You can defer 100% of your current instalment for 1 month:
Your deferred loan repayment will be spread out evenly over the remainder of your repayment schedule from month 2 onwards, and the term of your loan will remain as per your current agreement.
You won’t pay any extra interest for the deferred payment.
To be clear, while interest will accrue as normal, the total interest amount will be capped as per the original interest amount on your contract. If, however, you have already accrued additional interest or charges on your account above your original contractual amount, interest on your account will be frozen at the current accrued amount, and will not accrue any further.
Payment Holiday Option 2: You can pay 50% of your current instalment this month, and the remaining 50% next month plus additional time to pay, at no extra cost:
Your remaining loan repayments will continue from month 3.
We will extend your loan term by an additional month. This means your payments will be spread over a longer, more manageable time-period.
You won’t pay any extra interest for the deferred payments.
To be clear, while interest will accrue as normal,
This seems at odds with the fca steer where the loan gets paused for a month.
I’m going to respond back but wanted to check I was correct with my thinking
Thanks Adrian
Sara (Debt Camel) says
Their first option looks like the 1 month deferral? Will you be able to afford the larger monthly payments for the rest of your loan … how many months is that?
Is this your first loan from them? If not, have you looked at making an affordabilty complaint as well as asking for a one month break?
Adrian says
It’s not my first loan from them, I don’t think it is as
1. The reminder of the loan is spread out across the other payments
2. Intesest continues to accure during the month put stops if it hits a cap at the interest calculated at the start of the loan
Sara (Debt Camel) says
1. The reminder of the loan is spread out across the other payments
the FCA hasn’t been specific about how the deferred months payments has to be repaid. Spreading it across the rest of the month is one option – if there are 8 months to go you may think that is reasonable. If there is only 1 or 2 months to go, I suggest you ask MB if an extra month can be added on instead.
2. Interest continues to accrue during the month put stops if it hits a cap at the interest calculated at the start of the loan
Which means that you won’t pay any more interest because of this. That sounds OK to me?
It’s not my first loan from them
Then look at making an affordability complaint as well. See https://debtcamel.co.uk/payday-loan-refunds/
Sara (Debt Camel) says
The FCA says “The firm should allow the customer to repay the deferred payment over such period and in such amount as the customer can reasonably afford, including over a period that extends beyond the original period of the loan.”. So when you go back to MB, quote that. What they have proposed isn’t out of line with what the FCA said but you can ask for this different option.
Jess says
Hi
Not sure ive commented on right place, but I’m just really fed up of one particular company- PiggyBank. They have been harassing me non stop even though ive told them about getting ill and being off with work around 2 months, my husband lost his job twice prior to that, and just before lockdown my workplace reduced my working week by 7.5 hours, now im on furlough at the brink of loosing my job.. so ive had some pretty awful luck and when i email them they do not care, and have sent my default notices every month, when they put my acc on hold on month but with no notice they send a default. When I question it, it gets ignored. I even tried going through ombudsmen but they are going bust. This is over a amount of £100 and they are threatening legal action. Help – i am not refusing to pay but im so disgusted at their treatment.
Sara (Debt Camel) says
had you borrowed from them before this loan?
do you have a lot of other debts that are now a problem?
Jess says
Hi
Thanks for getting back to me. I hadn’t borrowed from them before and currently have other debtors, and have to say most of them have been understanding and have accepted small
Payment plans till things are more certain, however PiggyBank i feel are harrasing me. I paid £5 as that’s all i can afford at the moment, yet default issues are issued every month. I must admit i did avoid contact for a while whilst being ill as i was struggling to face it
Sara (Debt Camel) says
Unfortunately PiggyBank is legally obliged to send some default notices.
As PiggyBank is in administration, complaints can’t go to the Financial Ombudsman. It is VERY unlikely PiggyBank will start legal action against you. They could sell your loan – with the other outstanding loans – to a debt collector, but a debt collector will probably be happy to take 35 a month for it. debt collectors are often a lot nicer to deal with than payday lenders :(
Kenny says
Hi Sara,
I have a loan with Lending Stream on 02/03/2020 for the amount of £200 and then Lending Stream offered me another loan of £250 only a few days later on the 07/03/2020, then the day after another loan straight away on the 08/03/2020 for £200, I have been struggling to pay these loans and they froze interest for 30 days, however I still am unable to pay these loans, when I took out a loan with LS I had other loans as well as an overdraft, what should I do?
Sara (Debt Camel) says
You may have reason to say that the loans – particularly the last one – were “unaffordable”. there is a template letter to make a complaint here: https://debtcamel.co.uk/payday-loan-refunds/.
These complaints can take a long while to go through and if you win the complaint only the interest is removed. Which would be good, so I think you should do this if you think that £650 was clearly too much to loan to you.
But getting the interest removed on the last loan will probably not get rid of the remaining balance. so you also need to ask Lending Stream now to be able to repay more slowly at an affordable rate. which could be as low as £1 month if that’s all you can manage at the moment. Ask them to stop adding interest and charges. This will harm your credit record but there is no real alternative where – if you don’t have enough money you can’t pay them. If you win the affordability complaint, negative marks on your credit record for loans that are being refunded will be removed.
If you have other debts as well that you can’t afford to pay in full, it may be less stressful for you to set up a debt management plan with StepChange, see https://www.stepchange.org/how-we-help/debt-management-plan.aspx