It looks as though payday loans are becoming the new PPI in that many people have been mis-sold it and are seeking compensation as a result. You have long been able to get compensation for a mis-sold payday loan, however many people have remained unware of this until the fall of major player, short-term lender Wonga.
Wonga went into administration earlier this year, which was a shock to many people who knew Wonga as the leader in short-term, high-cost credit loans. Wonga famously offered the first instant loans with the offer of a loan lasting 30 days and money approved within 24 hours on any given day a week. Yes, it was convenient but borrowers were being charged interest rates of over 4,000%. This resulted in borrowers often having to take out second loans to pay off the first.
However, ever since the introduction of the FCA in 2014 and the stricter rules they put in place, the industry has been notably cleaned up and Wonga was actually not making any profit and paid out over £200 million in compensation. In fact, Wonga made an active loss of £37 million per annum as of 2014. Losses actually doubled in 2015 to just over £80 million. After losing out on a whopping £65 million in 2016, Wonga had to finally admit that it was in serious financial trouble.
The Financial Conduct Authority urges that payday lenders offer their customers the option of compensation even if it would mean that the lender was threatened with bankruptcy. They stress that it falls on the payday lender to contact their customers if the credit worthiness assessments were not compliant to their guidelines.
When can you claim compensation?
Lenders have a responsibility to be clear with the people they lend to. They have to:
Thing you can complaint about:
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