Paydayloan companies: Case study from the Debt Advisor

The past 12 months have seen a noticeable increase in debt management clients needing help with payday loans. This case highlights the issue well.

At the age of 19 our client (Debbie – not real name) found herself struggling with her credit card payments when she lost her job. Her credit rating became impaired due to missed payments, default notices and her debts were increasing with ongoing interest. She then found out about payday loans, after applying for one she was instantly approved and the money was granted almost straight away. She then faced the problem of paying back the loan. Each payday the loan was rolled over leaving her with even less money every month due to the charges applied - £340 to payback £200. Debbie became reliant on payday credit but she soon found she was facing debt repayment at the month end which exceeded her net salary.

In desperation she applied for a loan through a broker who took an upfront payment of £80 and assured her that they would find her a loan suited towards her circumstances. After two weeks of silence the broker rang to say her application had been declined and that the administration charge was non-refundable.

Debbie did not know which way to turn decided to complete an online income and expenditure tool on the internet which happened to be on our website. We chatted to Debbie about her options and it became apparent that 10 out of her 13 creditors were in fact payday loan companies. She favoured a debt management plan but was advised that an IVA may be more appropriate.

Debbie instructed us to set up a debt management plan. Initial letters were sent out introducing us and advising her creditors that we would be managing her accounts for the foreseeable future. The majority were more than happy to supply us with all relevant information to help us put together the repayment plan, bar one. A payday loan company refused to deal with us directly and instead opted to send the client fairly threatening letters advising that, firstly, they flatly refused to deal with debt management companies and, secondly, that they were going to send representatives to addresses that they held for Debbie.

We wrote back to the payday loan company advising that their letters breached firstly Clause 1.20 of the Office of Fair Trading guidelines on debt management, which reads:

“Where payments are tendered, not by the debtor personally, but by someone acting on his behalf, it is a principle of law that creditors cannot refuse to accept those payments. The practice of creditors returning payments, or not crediting payments to consumers’ accounts, purely because they are received through a DMC, therefore, is not acceptable and is a matter which the OFT regards as seriously detrimental to the fitness of the creditor. This is so even in circumstances where a creditor has indicated that it will not negotiate with a DMC acting as a representative of the debtor”.

Secondly, we reminded them that the threat to send representatives to her home was a breach of clause 2.12 of the OFT guidelines on debt collection. Unsurprisingly, the payday loan company apologised in both instances, saying: “Indeed you are correct regarding the OFT guidelines. The email sent to your client was sent in error due to the system and this issue will be rectified today.”

Debbie is hugely relieved that she now has finances back under control. She is aware that we have our work cut out to get the payday loan companies to freeze interest and charges but we appear to be winning. Debbie says: “I have found myself looking at things in a more positive light and I am finally getting a little more stability in life”. She goes on to say she would happily recommend our services to any friend or family member in a similar position.

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