You can get a “refund” for expensive payday loans if you haven’t repaid a loan. It can sometimes even be easier, as some lenders are quicker to reduce or write off debts than they are to hand over cash refunds.
The payday loan complaint process is explained, with template letters, here: How to get a payday loan refund. Use the same letters if you still have a loan outstanding, but this article looks at some extra points to think about when you still owe some money:
- who to complain to;
- what to say if the lender tells you to talk to the debt collector;
- should you stop making payments;
- what if the debt collector starts court action (this shouldn’t happen!);
- what a “full refund” is for these loans;
- be careful of write-offs which aren’t as good as they sound.
Complain to the original lender
Send your complaint about unaffordable payday loans to the lender.
This applies even if you defaulted a while ago and your debt has been sold to a debt collector. It was the lender, not the debt collector, who made the irresponsible lending decision that you are complaining about.
(The rare exception is if the lender has gone out of business and has either disappeared or is in administration – see Contact details for payday loan lenders for details of these. )
When you complain to the lender, also tell the debt collector, if there is one. Do this in writing – email is fine. This doesn’t have to give reasons, just “I am informing you that I have put in a complaint to [name of lender] on dd/mm/yy because I consider the debt reference 9999999999 was unaffordable and irresponsible lending. Whilst this complaint is underway, do not start any enforcement proceedings on this debt.”
You should tell the debt collector this even if so far you have been ignoring their letters. You do NOT want them taking you to court whilst you are in the middle of a complaint.
What to say if the lender tells you to talk to the debt collector
Sometimes a lender will send a response for the loans you repaid but say you need to talk to the debt collector for the last loan.
Don’t do this! You want your complaint looked at as a whole. If you agree a settlement with the lender for the other loans and the debt collector then rejects your complaint (they didn’t do anything wrong) then you are left with the current debt!
I suggest you reply saying you want the lender to consider your whole complaint including the last loan. If they refuse, send the whole complaint to the Financial Ombudsman immediately. Don’t delay with this sort of problem.
Stop making payments?
If you have been making the loan repayments and then having so little money you must borrow again, this has to stop. See how to escape from the payday loan trap for details about how to do this. This is really important, don’t hope to scrape through. Complaints can take a long time and you don’t want to accept a low offer and lose out on thousands because you are desperate.
If you are already making reduced payments which are affordable, eg in a debt management plan, it is usually better to carry on with these. They don’t hurt your complaint – they mean you are likely to get more back at the end. But if the “reduced payments” are too much, tell the lender/debt collector what you can afford or ask for them to stop while the complaint goes through.
If you want to stop making payments, you should tell the lender/debt collector and cancel any CPA/DD with your bank to be sure this happens. Don’t rely on the lender getting around to doing this before your next payment comes out. Never trust a payday lender to do the right thing.
To cancel a CPA, you usually have to phone your bank or send them a secure message. When you do this, make sure you make a note of the date and time and the name of the person you spoke to. If the bank says they can’t cancel a CPA, ask to speak to a manager. It is VERY rare that this is a problem now – it used to be very difficult before 2015 – but one reader had a problem so better safe than sorry.
Some lenders are happy with this, others will want you to agree to reduced payments. Making a payment arrangement is actually quite sensible and it doesn’t harm your complaint. Assuming your last loan as agreed to be unaffordable, you will get more back if you have made a few reduced payments. And if the last loan isn’t considered by the Ombudsman to be unaffordable, well at least you then have a payment arrangement in place and have already paid off some of the debt.
What if the debt collector starts court action
This shouldn’t happen! If you have told the debt collector about the complaint and you take your complaint to the Financial Ombudsman promptly, then the debt collector should not start any court action. The regulator’s rules say:
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.
The good news is that so far I haven’t seen any debt collector do this. It isn’t something you need to worry about providing you tell the debt collector about your complaint.
What is a “full refund” for a case including an unpaid loan?
It can be complicated to understand what a lender is proposing with cases involving an unpaid loan.
I find the easiest way to think about what should happen is to look at the repaid loans that are being refunded and the unpaid loan separately:
- add up all the interest you paid on the loans that were settled that are going to be refunded;
- work out two figures for the last loan: the amount you borrowed and the amount you have paid (it doesn’t matter if you paid this to the lender or to a debt collector, add up all payments). Ignore the current balance and the amount of interest that has been added.
What should happen with the last loan is that you should only have to repay the amount you borrowed less any payments you have made to that loan. Some examples:
Example 1 – you have already paid a lot towards the defaulted loan
You should be getting a refund of £700 on the earlier loans. The last loan was for £250, you have already paid £280 and there is still a balance of £90.
As you have already paid more than you borrowed on the last loan, it should be written off and the extra £30 you have paid to it is added to your refund. So the last loan is wiped and you get a refund of £730.
Example 2 – you haven’t fully repaid the last loan
You should be getting a refund of £700 on the earlier loans and the last loan was for £250, but here you have only repaid £100 and the balance is £290.
Here you still have to pay 250 – 100 = £150 to the last loan to repay all the amount you borrowed, with no interest. So £150 of your refund on the earlier loans is used to pay this reduced balance. The result is the last loan is wiped and you get a refund of £550.
Example 3 – you haven’t paid anything to the last loan
You should be getting a refund of £700 on the earlier loans and the last loan was for £250, but you didn’t make any payments and the balance is now £470 with a debt collector.
Here you still have to pay 250 to the last loan to repay the amount you borrowed if interest is removed. So £250 of your refund on the earlier loans is used to pay this reduced balance. The result is the last loan is wiped and you get a refund of £450. The fact the last loan is with a debt collector doesn’t matter – the lender will sort out getting this balance cleared.
Example 4 – you haven’t paid anything to the last loan and there’s only a small refund on earlier loans
You should be getting a refund of £150 on the earlier loans. The last loan was for £250, but you didn’t make any payments and the balance is now £470 with a debt collector.
Here the interest is removed from the balance, bringing down to £250 – what you borrowed. Then your £150 refund is used to repay some of this. This leaves a remaining balance £100 to be paid. This may feel like a disappointing result as you aren’t getting any cash, but it’s a big improvement on owing £470!
Example 5 – only one loan
You borrowed £250, have repaid £70 and owe the lender a balance of £360.
Here the interest is removed from the balance so you only have to repay what you borrowed, so it’s reduced to £180. This is a “full refund” – you won’t get any more by going to the Ombudsman.
Be careful of offers which aren’t as good as they sound
Sometimes a lender may offer a refund of £200 plus a write off of your balance of £480. You may think that sounds like a £680 refund and that’s pretty good as you paid £900 in interest.
But you need to be careful about that last defaulted loan. The interest in there should really be deducted from the balance… if that brings the balance down from £480 to £250, then the refund you are being offered is only 200 + 250 = £450. It’s not a bad offer, but it’s nowhere near as good as it sounds.
If you get an award from the Ombudsman (perhaps the lender accepts an Adjudicator’s proposal or an Ombudsman makes a final decision) and you don’t think the cash offer you then get from the lender looks right, talk to your adjudicator. Sometimes lenders make mistakes which can then be corrected.
What if you haven’t been contacted about the balance for years?
This is a difficult decision. If you aren’t contacted about a balance for over 6 years, it is unenforceable in court as it is statute barred. So you could hope to never hear about it.
However, there are a LOT more CCJs happening at the moment. Over 1.1million in 2017. Debt collectors are going to court a lot more readily than they used to. So the chance of this balance just being forgotten isn’t good.
If you had a lot of previous loans from the lender, then making a complaint is a good idea as you may well get back enough to clear the balance and hopefully more.
If this was the only loan, or there was only one previously, by making a complaint you are waking up the creditor who is likely to want you to repay the balance.
If you do hear from a debt collector, I suggest putting in a complaint straight away to the original lender and tell the debt collector you have done this as this should prevent any court action until the complaint is resolved. Don’t wait until you get court papers to do this, do it as soon as you get the first letter from Lantern or any other debt collector. I mention Lantern (previously known as MMF) as they buy up many payday loan debts.
What if you are in a debt management plan (DMP)?
All the above comments still apply if you are in a DMP – there are some additional points considered in Will an affordability complaint affect my DMP?