A reader asked:
I took out countless pay day loans a few years ago. Suddenly they have all come out of the woodwork. I now have a court claim arrive from Lantern – for an old Lending Stream loan.
I have applied to extend the date for defence but am not sure what to put in my defence. There are three other accounts outstanding and I’m guessing once they’ve claimed one they will apply for the others.
Payday lenders don’t often take a customer to court themselves, they tend to sell the debt on to a debt collector. But the general approach to these cases is much the same whether it is the lender or a debt collector suing you.
Don’t ignore a Letter Before Action
It is already too late for this if you have received a Claim Form. But if you are reading this because you are worried about what might happen in future, then look out for being sent a Letter Before Action, which may also be called something like Letter Before Claim.
This is a letter with various attachments, including one headed Reply Form
This is the last chance to head off a court case being started, and you should not ignore it even if you can’t afford to pay the debt. Read How to reply to a Letter Before Claim and take debt advice if you need help with this.
It is MUCH easier to dispute the debt at this point than in court. And if you start an affordability complaint with the original lender when you get this letter from a debt collector, tell the debt collector on the Reply Form and ask them not to start court proceedings until your complaint is resolved.
Claims about payday loans – points that can help you
My previous article, What to do if you get a Claim Form, has looked at the forms and court process for debts in general. Read that now as an overview.
Make sure you acknowledge the service of the form so you get an extra 14 days to put in your defence.
The procedures for payday loans are the same as for other debts but there are two extra reasons why you may want to defend one of these claims, even if you agree you owe the money:
- you may have an affordability complaint about this loan and other payday loans you had from the same lender that you want to be decided by the Financial Ombudsman;
- you may want to use an unfair relationship defence.
For a loan to be affordable, you have to be able to make the repayment without undue difficulty – basically without borrowing more the next month because you had repaid this loan.
So if you were regularly rolling over / deferring payday loans, or repaying one only to borrow again a few days later, your loans probably weren’t affordable. The lender should have spotted you were probably in difficulty and stopped lending.
If you don’t already have a payday loan complaint in with the lender, you should put one in right away if you think the loans were unaffordable. See How to ask for a payday loan refund for details about how to make a payday loan affordability complaint.
You should inform the debt collector of your complaint and ask them to halt (“stay”) the court process whilst your complaint is heard. If your complaint is upheld, the balance that you owe to the debt collector may be reduced or wiped out.
It is better to have your whole case heard by the Ombudsman rather than the last loan looked at individually in a County Court. The Financial Ombudsman Service (FOS) is provided as a customer-friendly, cheap alternative to going to court – that is what it is there for.
Remind the debt collector of FCA rule CONC 7.14.1: (1) A firm must suspend any steps it takes or its agent takes in the recovery of a debt from a customer where the customer disputes the debt on valid grounds or what may be valid grounds.
If the debt collector agrees, you need to confirm with the court that the case has been stayed. Do this before your time to file a defence has run out!
If the debt collector doesn’t agree, then you need to ask the court to stay the proceedings. For how to do this, see Getting some legal help below.
You can defend the case on the basis that there is an Unfair Relationship between you and the lender. The Consumer Credit Act 2006 enables a borrower to challenge a credit agreement in court on the grounds that the relationship between the lender and the borrower is unfair to the borrower.
In August 2020 there was a major case that looked at this – Kerrigan v Elevate Credit. There a claims company took a dozen clients cases against the payday lender Sunny to trial.
(NB Don’t approach a claims company and ask for help about your case. The Kerrigan case was VERY unusual. A claims company will not help if you are being sued by a creditor.)
The judge found that long term lending and Sunny’s failure to take account of it in assessing if the loans were affordable was a breach of the FCA’s affordability rules. And that breaching the FCA rules constituted an unfair relationship.
You will need help to file a defence based on this.
Getting some legal help
You need advice rapidly – be careful of the timescales to get your defence in.
It’s not just a case of “what do I write on the defence form”. You may have a lot of subsequent questions, such as “what do I do as the solicitors haven’t replied“, “should I accept this allocation to track“, “how to I apply for the case to be stayed” etc.
I am not a solicitor and I can’t help you with how to handle your case. Good places for support include:
- National Debtline 0808 808 4000;
- a local Law Centre;
- your local Citizens Advice. They can get help from the Expert Advice team nationally for complicated cases such as an unfair relationship defence;
- for help on the internet, the Legal Beagles “Received a Court Claim” forum is good.
And think about the bigger picture
If this debt is your only problem, then fine, defend the case and try to make sure you don’t get a CCJ.
But if you have a lot of other problem debts that you have been ignoring then being taken to court for a CCJ is a good point to look again at the whole picture. With aCCJ on your credit record, it will be much harder to get credit, more expensive to get car insurance and more difficult to get a new private-rented tenancy.
If your whole situation is unmanageable, you may do better to take the decision to go bankrupt or have a Debt Relief Order. (You should avoid an IVA unless you have assets to protect such as a house with equity or a car you own worth more than £2000).
CCJs can be included in bankruptcy or DROs and the debt will be cleared.