This fact sheet is England & Wales. If you require it, we also have a version that covers Scotland.
What is a Payday Loan?
A payday loan is a cash loan that is usually paid directly into your bank account. Payday loans are short-term loans that are meant to be repaid when you receive your next paycheck or other benefits.
These loans can cause problems, even though they are not a priority. These loans can quickly spiral out of control due to the high-interest rates. We will discuss alternatives to borrowing payday loans later in this factsheet. These loans can also be subject to other issues. Payday loans are not considered a priority debt. This is because you can’t lose your home, get a vital service cut or go to jail for non-payment.
Price cap for payday lenders
2 Jan 2015 New rules were created by the Financial Conduct Authority regarding how much payday lenders may charge.
0.8% per Day of the amount borrowed. This includes rolled-over amounts.
PS15 default charges cannot exceed. The interest rate on unpaid balances cannot exceed the initial amount borrowed.
Borrowers shouldn’t have to repay more interest and fees than they borrowed.
I can’t pay my payday loan
If you find yourself in this situation, here are two things that you should be aware of.
You should think twice about borrowing again if you have difficulty paying the loan. This will only work if you have the ability to pay more each month.
A few payday loan companies might offer a loan rollover. Your loan will be rolled over for a second month giving you more time to pay. If you’re having trouble paying your loan, this may be a good solution.
A rollover is when you enter into a new agreement. You will owe more because you will have to pay more interest and fees.
A rollover should be considered only if:
Your repayment problems are temporary.
You are certain that you can repay the loan in full within the next month. The FCA’s Consumer Credit Sourcebook (6.7.23) stipulates that a firm may not refinance an agreement more than once unless it is exercising forbearance.
A firm must send an information sheet to all parties involved in a refinance of an agreement. It should include specific warnings about the possibility of borrowing more money or determining whether the agreement can be refinanced.
You can stop the loan payment from being made if your due date approaches. The payday loan company will determine the type of repayment you have agreed to. If they’re given very little notice, they may not be able stop payments to the payday loan company.
How do I stop a payment?
Direct debit When you grant permission for a company or an individual to withdraw money from your account regularly. Direct debits can be canceled by writing to your bank, or via your internet banking or telephone banking services. Notifying the payday loan company is a smart idea.
Standing order In which you grant your bank permission for a regular payment to another account. A standing order can be canceled by your bank either in writing or via your internet banking or telephone banking services. You can cancel standing orders up to the closing of business the day before payment is due.
Payment by check If you’ve written a cheque to your payday lender to pay the due date of the loan, you must cancel the cheque. This can be done by writing to your bank, or via your telephone or online banking.
These are what payday loan companies call’recurring payments’. CPA is when you give your credit or debit card details to a payday lender and allow them to use your card to make a payment.
CPAs are often misunderstood and can be canceled. You can stop the payment if you have already agreed to repay your loan this way. For more information, please refer to the next section.
For example, if you have difficulty contacting the payday loan company because they are online, please contact your card issuer. See the sample letter. Withdraw your continuous payment authority from your credit card issuer. Even if you have not told the payday lender, your bank should immediately stop taking the payment or payments.
Stopping a CPA
The FCA website outlines your rights to cancel your CPA. You should be able to cancel the CPA by contacting the company that took the payment and asking them to stop. You can cancel your card issuer directly. It must immediately stop all payments once you’ve done so. The company cannot insist that this be done before you cancel.
A simple guide for your rights and bank accounts is also available from the Financial Conduct Authority (FCA). It is called Know your Rights: Banking.
Technically, you must withdraw your consent to payment being taken. The result is the exact same so don’t be discouraged if you hear terms differently.
To stop your continuous payment authority:
Write to or email the payday loan company and inform them that you have withdrawn your authorization for money to be taken out of your card. The sample letter To withdraw your continuing payment authority from payday loans company.
Write to your bank or card issuer and inform them that you want to withdraw your authorization for money to be taken off your card. See the Sample letter to withdraw your continuing payment authority from your credit card issuer.
If your continued payment authority is withdrawn and money is still taken out of your account, it is considered an ‘unauthorized transaction’. You should get a refund from your card issuer. This should include interest and charges that were added to your account due to the payment being taken. Complaints are available later in this factsheet.
While stopping payments to the payday lender may help you pay your bills and living costs, it does not mean that you are free from debt. Get full advice about how to manage your debt over the long term. Get advice from us.
In financial difficulties
According to the Consumer Credit sourcebook (7.6.12), customers in financial difficulty must be notified that a firm cannot request payment on a continuous payments authority twice for the same agreement. This rule is not applicable if the customer agrees to additional payments.
You may be able to apply for breathing room if you don’t have the time or patience to seek out debt advice or find a solution.
Breathing space can stop most forms of enforcement as well as creditors from applying interest and charges for 60 Days.
For more information, please refer to our Breathing Space fact sheet.