We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
The Forum is currently experiencing technical issues which the team are working to resolve. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Dealing with Payday Loan Companies
saltnvinegar
Posts: 717 Forumite
Hi All
I thought I would create a post on this topic as its something that seems to come up a lot and may save me posting the same thing and be useful for others to refer to too and add to at the same time.
BTW I'm not advocating debt avoidance here for the 'Won't Pays' of this world.
This advice is intended as advice on the additional action required when non priority debt (credit cards, loans, etc) has overtaken priority debts (mortgage, council tax etc) and those non priority debts include payday loans.
[EDIT] For the avoidance of doubt - this advice is aimed at anyone who has started (or about to start) a Debt Management Plan, or other form of debt management, but has not left enough time to open a new bank account and get their wages/benefits transferred to this new account, before their payday loans are due to be paid.
The whole point of a DMP or other debt management plan is that all your creditors are treated fairly and that no creditor is paid in full in preference to another. The repayment method used by Payday loan companies effectively ensures that this cannot happen unless you take action.
Again I will emphasise - this thread is not intended for 'Won't Pays'. It will not get you out of debt, and it will not make the problem 'go away'. It is essential that you seek professional, impartial, advice to understand your debt, and how to help you become debt free.
I recommend reading one of the stickies as a starting point:
Where to seek professional impartial advice about your debts
If you do not do that then the debt cycle will continue.
This thread is also intended to educate people on the repayment method itself (and why it is fruitless trying to argue with your bank) when a Payday Loan company empties your bank account, even if the amount taken is less than the repayment amount (i.e. they may take 2 or 3 small payments rather than one large one).
If this happens you are best spending your energy on dealing with your debt, rather than trying to argue with your bank in an attempt to get a refund of an 'unauthorized' transaction (which while you can argue about the ethics, is perfectly legal)
Best
SnV
[END OF EDIT]
I apologise for its length however. I didn't intend for it to be this heavyweight, but started to think about the usual questions of why this is all necessary. So read on.....
The problem with payday loans and why additional action is required
I'm not going to be dragged into the whole ethics of the payday loans business here (theres other posts for that!) but in order to understand why payday loans are such a problem for us and why they need special action you need to understand their business model.
Payday loans business model is based on short term lending resulting in quick profit due to the short term length of the loan.
They also make more money from you when you start 'deferring' or 'rolling' over that loan.
They do not want you to pay the original loan back (without their usual interest rate of 2000% APR) over a longer period of time. It does not suit their business model and they do not make the profit they want. Therefore getting a payday loan company to agree to a payment plan can be a challenge.
Its the next bit though that causes all the problems.....
When you signed the credit agreement you more than likely will have given them your debit card details from which they take payment.
What you may not have realised is that when you did this, in the contract you also gave permission for them to set up something called a 'continuous payment authority' (or similar).
It is this method of payment authorization that has been subject to many complaint to the FOS (for more info click here)
If you don't want to read through all that I'll summarise:
This method of payment can only be cancelled by the business that holds the authority (in other words the payday loan company) and is not covered by any sort of bank guarantee and your bank cannot be held liable for any over payments.
So, if for example you default on your payday loan, they payday loan companies can, and will continue to try for a payment.
What they will also do, is try for a payment for smaller amounts until they get some money in payment (leaving you with nothing).
So you may think "OK I'll cancel my card"
The trouble with this method, as has been experienced by hundreds of posters on this board, is that this still does not cancel the continuous payment authority.
So guess what? The payday loan company still tries for payment and your bank authorizes it! There have even been posters who have changed bank account numbers, but kept the same bank, who still a couple of months later had payments taken.
Your bank will have nothing to do with this and will be highly unlikely to help you. Even if you go to the FOS and make a complaint it will be months before you see your money refunded (if they find in your favour) and this does not help you short term. The damage will have been done.
The other issue of this method of payment is that it is often automated (another aspect of payday loan companies business model is to automate as much as possible to reduce overheads) which means that those who enter into a DMP, and who get their payment plan accepted by these companies, frequently find the continuous payment authority is still very active and takes the money regardless (then leaving them with nothing to pay anyone else on their DMP further adding to the stress).
So what can you do to stop this from happening?
Most people start to panic when there is a couple of days to go before the payday loan is due to come out.
The first thing to do is keep calm and remember rule #1 of dealing with creditors - do not call them on the phone. They will be experts at bullying, lying and manipulation (one I am aware of claims of 'close ties with the metropolitan police and will treat the matter as fraud' which is absolute brown squishy stuff but can be frightening if you don't know that)
The most important thing you have to do is ring fence any cash you may have to prevent the payday loans from getting at it. So first action is withdraw all the cash you still have. Once its safe in your pocket they can't get it.
What you do next depends on how close you are to the loans coming out but you have to do the following two steps:
Step 1
The only way to prevent the payday loan companies from getting your money is to open a new bank account (not linked to any other debt you may have as it could be used to 'offset') and get your wages paid into this account.
You can open an account in branch as long as you have sufficient proof of ID so its not going to take as long as you think.
You have to do this. Its the only way to be absolutely sure. Ok so it may be a little inconvenient but ask youself whats worse:
1) Spending a couple of hours getting your payroll to update your bank details, move a few direct debits (which you should change to standing orders) or:
2) Having a payday loan company wipe out your account so you cannot pay the mortgage/feed the kids/fill the car with fuel to get to work etc
Step 2
You also need to call your old (or current bank if you've not set a new account up) and inform them your debit card has been stolen (do not just cancel it or report it as lost) and that all transactions should be blocked as possibly fraudulent.
Also check that no direct debits have been set up (especially late at night!) as they sometimes do this to take a payment if a card payment is declined. You may need to check this daily and keep cancelling them every time they are set up.
This should (but not guaranteed) give you a little bit of time if you've not been able to set up a new bank account for your wages to go into. The second those wages hit that account though withdraw your cash so its safe! Once that new bank account is set up get that cash in there.
So what do you do next?
So once your income is ring fenced you can now start prioritizing your debt.
If you have a DMP in place and is being dealt with by a 3rd party let them negotiate with the payday loan companies on your behalf. Don't be surprised if they send you letters stating they will continue to try for payment (what do you think would happen if you hadn't changed your bank account?!)
Most (though not all) will only start agreeing to a payment plan after you have defaulted. Again remember their business model. They are not geared up for this and will not want to do it. If you are doing your DMP yourself you will need to be in their face every day. Send a letter a day, send 2 if you have to but now you can deal with them in the same way you would deal with any other creditor as they will not be able to prioritize themselves when it comes to taking your money!!
At the very worst they will add interest on for a couple of months and then sell the debt on to a DCA who will be more than likely to accept your DMP offer but the important thing is you keep a roof over your head and your family fed.
Remember, as with any non priority debt, it is not more important than paying your mortgage and other priority debt.
Best
SnV
I thought I would create a post on this topic as its something that seems to come up a lot and may save me posting the same thing and be useful for others to refer to too and add to at the same time.
BTW I'm not advocating debt avoidance here for the 'Won't Pays' of this world.
This advice is intended as advice on the additional action required when non priority debt (credit cards, loans, etc) has overtaken priority debts (mortgage, council tax etc) and those non priority debts include payday loans.
[EDIT] For the avoidance of doubt - this advice is aimed at anyone who has started (or about to start) a Debt Management Plan, or other form of debt management, but has not left enough time to open a new bank account and get their wages/benefits transferred to this new account, before their payday loans are due to be paid.
The whole point of a DMP or other debt management plan is that all your creditors are treated fairly and that no creditor is paid in full in preference to another. The repayment method used by Payday loan companies effectively ensures that this cannot happen unless you take action.
Again I will emphasise - this thread is not intended for 'Won't Pays'. It will not get you out of debt, and it will not make the problem 'go away'. It is essential that you seek professional, impartial, advice to understand your debt, and how to help you become debt free.
I recommend reading one of the stickies as a starting point:
Where to seek professional impartial advice about your debts
If you do not do that then the debt cycle will continue.
This thread is also intended to educate people on the repayment method itself (and why it is fruitless trying to argue with your bank) when a Payday Loan company empties your bank account, even if the amount taken is less than the repayment amount (i.e. they may take 2 or 3 small payments rather than one large one).
If this happens you are best spending your energy on dealing with your debt, rather than trying to argue with your bank in an attempt to get a refund of an 'unauthorized' transaction (which while you can argue about the ethics, is perfectly legal)
Best
SnV
[END OF EDIT]
I apologise for its length however. I didn't intend for it to be this heavyweight, but started to think about the usual questions of why this is all necessary. So read on.....
The problem with payday loans and why additional action is required
I'm not going to be dragged into the whole ethics of the payday loans business here (theres other posts for that!) but in order to understand why payday loans are such a problem for us and why they need special action you need to understand their business model.
Payday loans business model is based on short term lending resulting in quick profit due to the short term length of the loan.
They also make more money from you when you start 'deferring' or 'rolling' over that loan.
They do not want you to pay the original loan back (without their usual interest rate of 2000% APR) over a longer period of time. It does not suit their business model and they do not make the profit they want. Therefore getting a payday loan company to agree to a payment plan can be a challenge.
Its the next bit though that causes all the problems.....
When you signed the credit agreement you more than likely will have given them your debit card details from which they take payment.
What you may not have realised is that when you did this, in the contract you also gave permission for them to set up something called a 'continuous payment authority' (or similar).
It is this method of payment authorization that has been subject to many complaint to the FOS (for more info click here)
If you don't want to read through all that I'll summarise:
This method of payment can only be cancelled by the business that holds the authority (in other words the payday loan company) and is not covered by any sort of bank guarantee and your bank cannot be held liable for any over payments.
So, if for example you default on your payday loan, they payday loan companies can, and will continue to try for a payment.
What they will also do, is try for a payment for smaller amounts until they get some money in payment (leaving you with nothing).
So you may think "OK I'll cancel my card"
The trouble with this method, as has been experienced by hundreds of posters on this board, is that this still does not cancel the continuous payment authority.
So guess what? The payday loan company still tries for payment and your bank authorizes it! There have even been posters who have changed bank account numbers, but kept the same bank, who still a couple of months later had payments taken.
Your bank will have nothing to do with this and will be highly unlikely to help you. Even if you go to the FOS and make a complaint it will be months before you see your money refunded (if they find in your favour) and this does not help you short term. The damage will have been done.
The other issue of this method of payment is that it is often automated (another aspect of payday loan companies business model is to automate as much as possible to reduce overheads) which means that those who enter into a DMP, and who get their payment plan accepted by these companies, frequently find the continuous payment authority is still very active and takes the money regardless (then leaving them with nothing to pay anyone else on their DMP further adding to the stress).
So what can you do to stop this from happening?
Most people start to panic when there is a couple of days to go before the payday loan is due to come out.
The first thing to do is keep calm and remember rule #1 of dealing with creditors - do not call them on the phone. They will be experts at bullying, lying and manipulation (one I am aware of claims of 'close ties with the metropolitan police and will treat the matter as fraud' which is absolute brown squishy stuff but can be frightening if you don't know that)
The most important thing you have to do is ring fence any cash you may have to prevent the payday loans from getting at it. So first action is withdraw all the cash you still have. Once its safe in your pocket they can't get it.
What you do next depends on how close you are to the loans coming out but you have to do the following two steps:
Step 1
The only way to prevent the payday loan companies from getting your money is to open a new bank account (not linked to any other debt you may have as it could be used to 'offset') and get your wages paid into this account.
You can open an account in branch as long as you have sufficient proof of ID so its not going to take as long as you think.
You have to do this. Its the only way to be absolutely sure. Ok so it may be a little inconvenient but ask youself whats worse:
1) Spending a couple of hours getting your payroll to update your bank details, move a few direct debits (which you should change to standing orders) or:
2) Having a payday loan company wipe out your account so you cannot pay the mortgage/feed the kids/fill the car with fuel to get to work etc
Step 2
You also need to call your old (or current bank if you've not set a new account up) and inform them your debit card has been stolen (do not just cancel it or report it as lost) and that all transactions should be blocked as possibly fraudulent.
Also check that no direct debits have been set up (especially late at night!) as they sometimes do this to take a payment if a card payment is declined. You may need to check this daily and keep cancelling them every time they are set up.
This should (but not guaranteed) give you a little bit of time if you've not been able to set up a new bank account for your wages to go into. The second those wages hit that account though withdraw your cash so its safe! Once that new bank account is set up get that cash in there.
So what do you do next?
So once your income is ring fenced you can now start prioritizing your debt.
If you have a DMP in place and is being dealt with by a 3rd party let them negotiate with the payday loan companies on your behalf. Don't be surprised if they send you letters stating they will continue to try for payment (what do you think would happen if you hadn't changed your bank account?!)
Most (though not all) will only start agreeing to a payment plan after you have defaulted. Again remember their business model. They are not geared up for this and will not want to do it. If you are doing your DMP yourself you will need to be in their face every day. Send a letter a day, send 2 if you have to but now you can deal with them in the same way you would deal with any other creditor as they will not be able to prioritize themselves when it comes to taking your money!!
At the very worst they will add interest on for a couple of months and then sell the debt on to a DCA who will be more than likely to accept your DMP offer but the important thing is you keep a roof over your head and your family fed.
Remember, as with any non priority debt, it is not more important than paying your mortgage and other priority debt.
Best
SnV
LBM & Debt July 2010 [STRIKE]£19,000[/STRIKE] now - £11,619.60 Long Haul Supporter #247
Remember Income > Expenditure = MSE Heaven :A and Income < Expenditure MSE Hell
Current STB (sticking to budget) Counter - day 109 (Personal Best - 109 days!)
Remember Income > Expenditure = MSE Heaven :A and Income < Expenditure MSE Hell
Current STB (sticking to budget) Counter - day 109 (Personal Best - 109 days!)
0
Comments
-
Excellent SnV, nail on head.
I know most people reading this will have already succumbed to the payday loan industry but if anyone is thinking of taking a PayDay Loan out, one word of advice.
Don't.I'm Debt Free :j 2/09/2013
Debt at LBM 30/04/2010 £24,109.38,0 -
Thanks for your advice yesterday,(reported my card stolen) I wait in anticipation for Monday when my payday loans come out and my wages come in, will I be left with absolutely nothing in my bank account. I have set up new account with co-op. What a fool I've been.....still cant sleep/relax not eating my stomach in knots.......as my name suggests I always have to do things the hard way.0
-
Hi
No problem at all, have been there and learned the hard way myself so know what its like.
If you want to be double sure call your bank today again and say that one of the other cards you have (that was stolen
) has been used fraudulently and you want to make sure that all payments should be blocked.
Get yourself to the bank first thing Monday morning and hopefully this should have been sufficient to stop the payday loan payments being taken and you can then withdraw your wages (you may need some photo ID and other proof of ID to do this so remember to take your passport/driving license and a recent utility bill just to be doubly sure).
Then put that money in your new Co-op account and don't spend it! You need it for the mortgage remember?
Fingers crossed for you, this will be ok, and you can then start dealing with the payday loan companies like any other creditor (i.e. you offer to pay them what you can afford in line with your DMP)
SnVlearntthehardway wrote: »Thanks for your advice yesterday,(reported my card stolen) I wait in anticipation for Monday when my payday loans come out and my wages come in, will I be left with absolutely nothing in my bank account. I have set up new account with co-op. What a fool I've been.....still cant sleep/relax not eating my stomach in knots.......as my name suggests I always have to do things the hard way.LBM & Debt July 2010 [STRIKE]£19,000[/STRIKE] now - £11,619.60 Long Haul Supporter #247
Remember Income > Expenditure = MSE Heaven :A and Income < Expenditure MSE Hell
Current STB (sticking to budget) Counter - day 109 (Personal Best - 109 days!)0 -
Agree whole heartedly.
In fact the majority of people who use any form of borrowing to try to pay off their debts only end up further in debt, payday loans just tend to compound the problem.
Payday lenders though are quite clever (and very often downright deceitful) though in how they have ensured that should you default they are several steps ahead of your other creditors in trying to get their hands on your money.
SnVeyeopener2 wrote: »Excellent SnV, nail on head.
I know most people reading this will have already succumbed to the payday loan industry but if anyone is thinking of taking a PayDay Loan out, one word of advice.
Don't.LBM & Debt July 2010 [STRIKE]£19,000[/STRIKE] now - £11,619.60 Long Haul Supporter #247
Remember Income > Expenditure = MSE Heaven :A and Income < Expenditure MSE Hell
Current STB (sticking to budget) Counter - day 109 (Personal Best - 109 days!)0 -
Hi just read the above posts - some really useful advice. We too have got in a mess with payday loans. We are due to have nearly £1000 taken out this month from them (I feel so upset and angry with myself for getting in this mess). If we report our card as stolen and open another account elsewhere what sort of questions will our current bank ask us about the stolen card. We're scared what to say and not sure about any awkward questions we may get asked. We have applied on the phone to the co-op for a basic bank account but this has been referred and we have to ring up on Wednesday to see if we're successful (we also applied for a standard account elsewhere and have assumed we did not get it). Do you think this is why we have been referred. Sorry for long post. Hope someone can help. Did not sleep at all last night. Halifax Loan £6,511, Halifax O/D £1,300
Next Catalogue £576.66, Capital One £397.31Vanquis £266, Marshall Ward £656.04, Argos Card £1300.:(:mad: Plus 3 Payday Loans :mad: NEVER AGAIN!!0
-
Hi
Just keep it simple, you're not looking to write the script for an episode of Inspector Morse
How do cards normally get stolen?
You were in town, got bumped into on your way into a store, go to pay after doing some browsing for a couple of minutes and find your purse missing. One of the other cards that was in there has already been used.
You were in a restaurant, put your coat on the back of the chair, went to pay and it was gone.
You really shouldn't need to be asked to give any more information than that, unless you start claiming that any purchases made previously are also fraudulent (when you may then get asked more probing questions in case you've been buying stuff and are trying to claim it wasn't you).
You are not claiming that any existing payments are fraudulent and I most certainly wouldn't condone that.
Remember the goal is to stop (at least short term) any future payments so you can get another bank account sorted out.
SnVHi just read the above posts - some really useful advice. We too have got in a mess with payday loans. We are due to have nearly £1000 taken out this month from them (I feel so upset and angry with myself for getting in this mess). If we report our card as stolen and open another account elsewhere what sort of questions will our current bank ask us about the stolen card. We're scared what to say and not sure about any awkward questions we may get asked. We have applied on the phone to the co-op for a basic bank account but this has been referred and we have to ring up on Wednesday to see if we're successful (we also applied for a standard account elsewhere and have assumed we did not get it). Do you think this is why we have been referred. Sorry for long post. Hope someone can help. Did not sleep at all last night.LBM & Debt July 2010 [STRIKE]£19,000[/STRIKE] now - £11,619.60 Long Haul Supporter #247
Remember Income > Expenditure = MSE Heaven :A and Income < Expenditure MSE Hell
Current STB (sticking to budget) Counter - day 109 (Personal Best - 109 days!)0 -
Thanks for the advice SNV made me laugh - even though its not a laughing matter. Certainly learnt my lesson with payday loans. Halifax Loan £6,511, Halifax O/D £1,300
Next Catalogue £576.66, Capital One £397.31Vanquis £266, Marshall Ward £656.04, Argos Card £1300.:(:mad: Plus 3 Payday Loans :mad: NEVER AGAIN!!0
-
ADVICE- Firstly I fail to see where the poster has given any advice, other than how to avoid paying a debt owed.The poor people who have got THEMSELVES in this mess really need some help other than how make up some kind of story as to how report their bank card has been stolen.Secondly we complain about how banks treat us, but you are willing to offer advice in how to waste their time dealing with a false story when they could be dealing with genuine customer queries.
Any way if the so called advice assists any one in their problems I will be amazed.
These forums are full of people who need sound advice there is no doubt about that however this is not it.0 -
MARKYS - I can only assume you have not dealt with payday loans then? Unfortunately they are nothing more than a "legalised" (and I use the term loosely!) loanshark... there is little that can be done to deal with them using the usual methods because they have other ways of getting their payments that cancelling a DD or SO can't fix. Unfortunately they do NOT care if you have to pay the mortgage or feed your children. What SnV is advising is not AVOIDING debts - infact it's made very clear that it's not about that.
This is about stopping a cycle that is extreemly hard to break - and yes it will result in the usual debt collection actions and DCAs and possibly court and CCJs. This is an emergency measure to regain control, stop a very bad cycle of borrowing once and for all and actually address the debts but in a fair way to all creditors. Do I agree with reporting cards stolen? No actually I don't - but I can't offer an alternative solution in the immediate short term which is what is needed in most of these cases. As SnV has said - this is NOT so anyone can start claiming real payments were fraudulant - that IS fraud and the police and banks take a dim view. This is about stopping a payment going out short term until people are back on their feet and can address the debts in a structured way.DFW Nerd #025DFW no more! Officially debt free 2017 - now joining the MFW's!
My DFW Diary - blah- mildly funny stuff about my journey0 -
Hi Markys Mission
Thanks for your input to my thread.
Just to clarify where this advice is relevant:
At no point did I advocate debt avoidance. In fact if you look at the second line of my post you will see me say:
"BTW I'm not advocating debt avoidance here for the 'Won't Pays' of this world"
My advice is for those people who want to pay back their debts but are finding themselves in this situation:
When you enter into a Debt Management Plan (or any other form of debt management), one of the primary objectives is that all creditors are treated fairly.
The recovery model of Payday Loan Companies means that cannot happen as they will simply take their money ahead of the others creditors.
In many cases this also makes the debtors issues worse as they money taken wipes out anything they have to pay for essentials like mortgage/rent and groceries, which results in some taking out more payday loans, continuing the deadly spiral.
What you seem to fail to appreciate is that to start fixing things you have to break this cycle and unfortunately this means for a short time stop paying your creditors, or offer them minimum amounts.
I fail to see how allowing someone to fall into arrears with their mortgage, or even lose their home is going to help them pay back their debts.
I'm not advocating wasting a banks time. The problem here is that banks have provided companies with a method of payment where they can take whatever they like whenever they like and the banks will wash their hands of it because they are not responsible!
So what else are consumers to do?!
And a quick search of these forums will show this advice is sound in its method.
These people can now start to tackle their debts, safe in the knowledge that their wages are going to cover essential bills and outgoings.
However I am very open minded and welcome to new ideas on dealing with this problem. You say my advice is not going to help?
Well if you can come up with another solution to this problem, I, and many others would be happy to hear it!
But so far you've not......
SnVMARKYS_MISSION wrote: »ADVICE- Firstly I fail to see where the poster has given any advice, other than how to avoid paying a debt owed.The poor people who have got THEMSELVES in this mess really need some help other than how make up some kind of story as to how report their bank card has been stolen.Secondly we complain about how banks treat us, but you are willing to offer advice in how to waste their time dealing with a false story when they could be dealing with genuine customer queries.
Any way if the so called advice assists any one in their problems I will be amazed.
These forums are full of people who need sound advice there is no doubt about that however this is not it.LBM & Debt July 2010 [STRIKE]£19,000[/STRIKE] now - £11,619.60 Long Haul Supporter #247
Remember Income > Expenditure = MSE Heaven :A and Income < Expenditure MSE Hell
Current STB (sticking to budget) Counter - day 109 (Personal Best - 109 days!)0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 350.5K Banking & Borrowing
- 252.9K Reduce Debt & Boost Income
- 453.3K Spending & Discounts
- 243.5K Work, Benefits & Business
- 598.2K Mortgages, Homes & Bills
- 176.7K Life & Family
- 256.6K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards