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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 posting the same thing and be useful for others to refer to too and add to at the same time.
Important Note: I am 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.
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 a debt problem 'go away'. It is essential that you seek professional, impartial, advice to understand your debt, and how to help you become debt free.
Organisations such as CCCS, Payplan and National Debt Line are good places to start.
If you do not do this 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)
I do apologise for the length of this thread 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% plus 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
http://www.financial-ombudsman.org.uk/p ... yments.htm
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 posting the same thing and be useful for others to refer to too and add to at the same time.
Important Note: I am 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.
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 a debt problem 'go away'. It is essential that you seek professional, impartial, advice to understand your debt, and how to help you become debt free.
Organisations such as CCCS, Payplan and National Debt Line are good places to start.
If you do not do this 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)
I do apologise for the length of this thread 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% plus 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
http://www.financial-ombudsman.org.uk/p ... yments.htm
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
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