How to claim for a mis-sold payday loan

Have you ever had a payday loan? If the answer is yes, time is ticking on your chances to reclaim. Martin Lewis says you need to urgently check if you were mis-sold, as some lenders are on their way to going bust.

He joins us to share tips on how to check if you were mis-sold and even how to reclaim £100s if not £1,000s for free.

Payday loans are quick, short-term loans of £100-£1,000 that, as their name suggests, tides you over till your next payday, at which point you have to pay it back, plus the massive amount of interest charged on top too.

Sometimes they’ve been used to cover an emergency cost like a broken fridge that you couldn’t afford from your monthly salary or savings – other times people fell for marketing of often irresponsible firms pushing people to grab these outrageously expensive loans – often over 1,000% APR, which people then used to spend or even gamble.

They only started being regulated in 2014, and by January 2015 the regulator, the FCA imposed a price cap of 100% of the amount borrowed, i.e so you should never repay more than double what you borrowed. For example, a £300 payday loan should mean that at most you repay the original £300 plus a maximum £300 of interest and fees. Though that’s still hugely expensive over a short period when compared to normal lending.

Many people have been mis-sold, but you’re warning if they want to complain to do it quickly, why?

Relatively recently, big payday loan firms Wonga, Wage Day Advance and Juo Loans have all gone bust – often due to the combined weight of unaffordable mis-selling claims and the regulator's price cap. And while I'm far from mourning them, my main concern is that, as if likely, other payday dominoes continue to fall, reclaiming will become 'first come, first served'.

If you were mis-sold and a firm is solvent you get the full amount back, but if it goes bust you're just one of the creditors, and will be lucky to get a few pence per pound – as what’s happened with Wonga customers (there’s a claims portal here if you still want to put in a reclaim against Wonga).

That’s why with other firms you should get a claim in ASAP, before a lender possibly goes bust.

How can someone check if they were mis-sold it?

Before lending to you there are certain things a payday lender must do, and if they don’t it counts as mis-selling. For example…

- The lender must examine your finances to ensure you can afford the loan and fees. So for instance you shouldn’t have been given a £1,000 loan if you only earn £500/month.- The lender didn’t make it clear to you how much it would cost you in total to repay the loan.- You weren’t given full or accurate information about how and when to pay back your loan.- The lender didn't tell you that a payday loan should not be used for long-term borrowing or if you are in financial difficulty.- You weren't told by the lender what to do if you have a complaint.

If you were mis-sold then you are due back all the interest, fees, charges and 8% per year statutory interest on top since you took it out.

And payments can be £100s or even £1,000s like forumite Paydayloanalice said “I followed Martin’s advice after getting 16 payday loans in 2yrs. I received Lending Stream’s refund and got over £1,600

How do people reclaim?

You can claim on existing loans and loans you’ve already paid off, usually as long as you raise the case within six years of taking out the loan (though in a few rare circumstances you may get longer).

Importantly, there’s no need to pay anyone to reclaim, you can do it yourself for free. See Martin’s ‘Free payday loan reclaiming tool & guide’ for full help or just write to the lender yourself explaining why you think you were mis-sold .

And if the payday lender rejects you, don't think it's over. Over 60% of people who then take their case on to the free Financial Ombudsman Service win (Martin’s free tool above automatically escalates it for you where appropriate).

If people need a payday loan what other alternatives are there?

Need is the crucial term here. I believe much of the demand for payday loans was created by it being marketed wrongly as a quick fix solution, when it actually made the problem worse. For most payday loans are a flawed concept. How many in a dire situation and need the money now, would see such an improvement within a month that they not only not need to borrow again, but could repay last month’s loan plus the huge interest?

Yet of course some people will have short term emergencies where they need to borrow to plug the gap. Always minimise the amount you borrow, ensure you can afford the repayments, and repay as quickly as you can (without killing your finances). Here are some options…

Use an existing credit card provided you can fully repay it the next month.

If you spend on a credit card this month, you get the bill next month, and then provided you can clear all the debt there’s no interest. So if you’re just looking for a one month respite, if you have any credit card you can clear the next month it works. If you don’t have one or you need longer, then try and get a card that gives 0% on purchases. While not easy to get for everyone, a 0% spending eligibility calculator (there are free ones online) will show you which cards you can get without effecting your credit score. And there are some deals which accept those without great credit scores for short periods.

And even if you can’t get a cheap credit card, or pay one off in full the next month, even a costly one still tends to be cheaper than payday loans.

For example a month’s £200 payday loan costs just under £50, but on a credit card cost even if you’re paying interest it’s only around £3-£10 a month in interest (depending on your APR).

Check out a credit union

A credit union or community development finance institutions are independently run local non-profit co-operative organisations which assist people who may not have access to financial products and services elsewhere. But you can’t just join any – they are usually limited to an area or a profession.

Loan rates are capped at 43% rep APR. To find one near you use Find Your Credit Union website.

Ask family or friends for help

It may be tricky but if you’re in a bad way it may be worth asking for help, even if it’s just going around for dinner or help babysitting children to help save on costs. Plus, often talking about your money problems can be a huge relief. Though think carefully through the pros and cons of this – especially if it puts you in someone’s debt that may use it as leverage over you.

Check if you’re eligible for a loan from the Government

Sadly these days there’s not much help available from the government. Those on some benefits meeting stringent conditions may be eligible for an interest free loan of up to £800, its worth checking theGovernment website but don’t expect it.

For those moving to universal credit – there’s a problem of an up to 5 week gap before your first payment. This has been a nightmare for many to fill the gap – you can now request for an ‘advance payment’ if this happens to you. It’s an interest free loan you repay it through your regular universal credit payments with 12 months. Apply via your online account or your work coach.

Get non-profit debt counselling help

If you’re really struggling with money then you need one-on-one debt counselling help, so make an appointment with either Citizens Advice, CAP, StepChange or National Debtline . These charities are there to help, not judge, and can put you in a debt management plan to take the pressure off. The biggest message I get after people go is "I finally slept last night".