This simple 3 step guide with letter templates will show you how easy it is to request a refund from your lender. 100s of readers have followed this process and have successfully been refunded anything from £200 to £2000!
Who’s this guide for?
This guide is for you if the loan that you took out made your finances more difficult. The FCA may classify these loans as “unaffordable” and as such you would be due a refund on your loan.
You can put a claim in if you made the payments on time, made late payments or even still owe them money. You can even claim if you’ve paid off your loan up to 6 years ago.
What is an “unaffordable loan”?
If you couldn’t make repayments without borrowing more from another loan or credit card then your loan was probably “unaffordable”. The Financial Conduct Authority says:
“the borrower should be able to make the required repayments without undue difficulty, whilst continuing to meet other debt repayment obligations and reasonable regular outgoings.”
For the loan to be affordable, you should have been able to repay the loan AND have enough left over to pay other expenses such as rent, bills, food etc.
If you rolled over your loan or borrowed more soon after paying off your loan, or your loans were getting bigger each time then this would be good evidence that the loan was unaffordable. Also if your loan was a significant part of your outgoings or if you were missing some of the repayments, this is also a good indicator that the loan was unaffordable.
The Financial Conduct Authority have made it clear how lenders must behave. They recently came out with a list of rules. If you think the lender has broken any of these rules, then add them to your claim. Lenders must not:
- refuse to negotiate with you if you are developing a repayment plan
- refuse to deal with a not-for-profit debt advice body, debt counsellor, debt management firm or with another person acting on your behalf, unless they can demonstrate that there’s a good reason for doing so
- pressurise you to pay a debt unreasonably – for example within too short a period of time or in amounts you can’t afford
- take disproportionate action to recover the debt, for example initiating legal action unless they have fully explored other solutions
- make empty threats of actions which they don’t intend to take or are not entitled to take
How much money can I get refunded?
The amount of money you will be refunded will be based on when the lender released that you couldn’t afford the loan. This may have been at the start of the loan, if, for example they didn’t do a sufficient affordability check when you were applying.
You’re best asking for a full refund on all interest and charges and then when it gets sent to the Financial Ombudsman Service, they will decide what’s fair. This way you’re maximising what you might get.
In addition, if any of the ‘extra ammunition’ bullet points above were broken, then you should ask for additional compensation due to the way that your situation was mishandled when you informed the lender of your circumstances.
There’s 3 easy steps to claim for a refund:
Step 1 – information gathering
First step before you make a claim is to collect some data:
- Go to Experian and get a free copy of your credit score. You need to get this info as we will also request that they mend your credit score and you will want to see the improvement.
- Go to CreditKarma and get a copy of your credit file. We do this because sometimes when you make a claim the lender will delete your loan from your credit file, and we may need all these details if we have to escalate to the Financial Ombudsman Service.
The next thing to do is ask the lender for all of the details about your loan. Under the new GDPR regulations, you’re allowed to do a ‘subject access request’ for free.
To get these details, send the template below via email:
I am making an irresponsible lending claim. To help me with my claim please send me details for all of my loans, showing when each loan was taken out, the amount of interest and fees that were added and what I have repaid to date.
If any of my loans have been sold to a debt collections agency then please let me know the date of the sale and the name of the debt collections agency.
Under the General Data Protection Regulations you are not allowed to charge me for requesting this information.
The loans that you gave me were unaffordable and therefore I should not have been approved. Please refund all interest and any charges that I have paid. The refund should include statutory interest. Finally any negative information should be deleted from my credit file.
The regulations say that you need to be sent this information within one month. Also this email officially starts the complaint which gives the lender 8 weeks to reply.
Step 2 – full complaint asking for a refund
Once the lender has sent you a full list of your loan details, you can now send a full complaint. Don’t worry, this is very simple, just follow the template, no need to do calculations or read complex law – I’ve done that for you!
Everyone’s story is different, so just delete the sections in the template below that don’t apply:
I’m following up with some additional details regarding my irresponsible lending claim that I sent via email on DD/MM/YYYY
I have had loans with you between the dates of DD/MM/YYYY and DD/MM/YYYY.
The monthly repayments that you were charging me was such a large proportion of my income that I was forced to borrow again.
Between the dates of DD/MM/YYYY and DD/MM/YYYY my average net income was around £X a month.
If you have a dependents such as a wife and kids to support, add details here. Eg. My wife and I have two children which we must support. Child tax benefits averaged around £X a month.
My monthly expenses totalled around £X a month. This is made up of £X rent/ mortgage, £X council tax, £X bills, £X transport costs, £X clothes, £X supermarket shop, £X child expenses and £X for other debt repayments (loans and credit cards).
Looking at my income and expenses, it’s clear that there is no way I could afford to make the repayments on your loans. I had to take out other loans and credit cards to ensure that I could pay living expenses for the next month.
As a lender you should have realised when you lent to me and from the number of times I had to borrow more that my level of debt was increasing. It was irresponsible of you to lend to me in the first place and to continue to do so. [Add specific details if you have them – eg. How many loans, how often, how much etc.]
If you would have checked my credit file, you would have seen that I had other loans and credit cards and would have seen that I had issues such as late payments/ credit defaults/ CCJs.
Given all of the above, it’s clear that I should never have been approved for these loans as they were clearly unaffordable. Please refund all interest and any charges that I have paid. The refund should include statutory interest. Finally any negative information should be deleted from my credit file.
That’s it, good work. Send the letter and keep a copy for your reference.
Now wait. The lender has up to 8 weeks to reply. When they do reply, one of three things will happen:
1) You get a full refund, you’re happy and you can cash that cheque!
2) The lender offers you just a small amount that you’re not happy about
3) The lender rejects your claim
In circumstances 1, congratulations! In circumstances 2 and 3, go to step 3 below.
Step 3 – escalate to the Financial Ombudsman Service
Once you’ve got a response from the lender then it’s time to decide if you want to proceed with step 3.
Very often a lender will reject your offer thinking that you will just give up. This is very common with my readers, don’t worry, there’s still a chance that you’ll get a refund.
There’s many thousands people like you that have escalated their claim to the Financial Ombudsman Service (FOS) and got a pay out. In fact the FOS has reported that loan affordability compliant are the most common complaint and has the highest chance of being awarded in your favor.
Should you go to the Ombudsman or give up?
You should seriously think about sending your complaint to the Financial Ombudsman if:
- the company does offer a refund, but you think it’s too low
- the company says they’re not going to refund you anything
- the company doesn’t reply to your letter within 8 weeks
- the company says that they can’t refund you due to selling the loan to a debt collector
- the company says that they can’t refund you due to the age of the loan
Beware, companies have been known to say that you don’t have any basis for your claim, however they’re just trying to dissuade you from escalating to the FOS. I’ve had many readers that have had a refund, even after being told no by the company. Common things that they might say which you can ignore:
- the company blames you for entering in the wrong details during the application – this is not a valid defense as if you were desperate for money, you would said anything
- the company says you can’t claim because you showed that the loans were affordable by repaying them early – this is not a valid defense as they don’t know what other bills you may have had.
- the company says that you were borrowing less and less over time – this is not a valid defense as they could still be unaffordable even if you are borrowing less over time.
- the company says that they didn’t have to do a credit bureau check – this is not a valid defense either!
If you got an offer that is smaller than expected
Once you’ve got an offer from the company, you should consider it carefully. The best way to weigh it up is to look at what the refund is compared to the total amount of interest that you paid across the lifetime of your loans. If it’s just a small proportion you may want to take it to the FOS. We’ve seen people get 20x what they have been offered in the initial refund.
Really there’s no downside with escalating the FOS as there’s no scenario where the original offer will not be valid.
Also, remember to ask to have any negative credit bureau reports removed from your file before accepting the offer. They might not be able to do this, but there’s no harm in asking before you accept the offer, however once you’ve accepted the offer they will be less likely to help you.
You have 6 months to escalate to the FOS, so don’t hang about, just get it done.
The steps when you escalate to the Financial Ombudsman Service
The Financial Ombudsman Service will deal with your claim in two steps.
Step 1: An FOS Adjudicator will review your case and make a decision as to how much the refund should be. Most cases get settled at step 1.
Step 2: If both the company and yourself accept the offer, step 2 doesn’t happen. If either the company or yourself doesn’t want to accept the offer then it goes to a FOS Ombudsman for a final decision.
How to escalate your claim to the Financial Ombudsman Service
First thing to note is that you should do a separate complaint for every company that you’re dealing with. If you send it all together it may confuse things.
There’s lots of ways to send your claim to the FOS:
The FOS website explains it very clearly the steps you need to take. My readers tend to like to do it online, which will guide you through each stage of the process and give you the ability to upload the evidence which we discussed in this article.
After you have submitted the claim
You can expect to receive first contact from the FOS in 2 to 3 weeks. Ideally you would have submitted everything the FOS needs to process the claim, however if this is not the case, they may reach out to you for additional details, in which case you’ll have the opportunity to upload again.
Now you won’t get a formal reply from the FOS Adjudicator for around 3-4 months as that’s how long it takes for the FOS to get a response from the lender and process your claim.
If you need further help
Your local Citizens Advice will give you help if you need it. And best thing is that it’s free!
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