High Cost Credit Claims: Understanding Your Rights

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4. High Cost Credit Claims: Understanding Your Rights

What You Need to Know About High Cost Credit Claims

If you’ve taken out loans with higher interest rates than traditional bank lending, you may have grounds for compensation. Many borrowers don’t realise that these lenders must follow strict affordability rules, regardless of the interest rates they charge.

High cost credit claims typically involve loans repaid over several years, distinguishing them from short-term products. Despite longer repayment periods, these loans often prove problematic for borrowers who were already experiencing financial difficulties when their applications were approved.

Understanding How This Type of Lending Works

These loans fall outside the Financial Conduct Authority’s definition of ‘high-cost short-term credit’ due to extended repayment terms. However, they share many characteristics that can lead to financial hardship and subsequent high cost credit claims.

The Reality of Higher Interest Lending

Borrowers typically turn to these lenders when mainstream banks decline their applications. Interest rates can be substantial, and the total amount repaid often far exceeds the original loan. What appears manageable as a monthly payment can become unsustainable over the loan’s lifetime, leading many to pursue high cost credit claims.

The longer repayment period actually requires more thorough affordability assessments. Lenders must ensure customers can maintain payments throughout the entire term without hardship—not just manage the first few instalments.

Regulatory Requirements and Your Protection

The Financial Conduct Authority requires all lenders to conduct proper affordability checks before approving credit. This isn’t about whether the lender is willing to take a risk—it’s about whether you can genuinely afford the repayments. When these checks fail, it often results in valid high cost credit claims.

What Lenders Must Consider

Responsible lending means assessing whether customers can make payments without:

• Experiencing financial difficulty
• Needing to borrow elsewhere to keep up
• Suffering significant adverse consequences

Simply accepting lending risk doesn’t excuse inadequate checks. Assessments must be borrower-focused, considering individual circumstances before approval.

Recognising Irresponsible Lending Practices

The Financial Ombudsman Service has provided clear guidance through various decisions about high cost credit claims. In one significant case, they stated:

“It’s clear that Miss O’s income was pretty much being used to meet commitments to existing creditors. And she was using payday loans as well as her overdraft in an attempt to supplement her income and make ends meet. I think the proportionate checks would have shown 118 118 Money that she was likely to use this loan in the same way which meant she was unlikely to be able to repay it without borrowing further or suffering significant adverse consequences.” https://www.financial-ombudsman.org.uk/decision/DRN-2247880.pdf

This demonstrates how lenders must identify existing financial stress before approving additional loans.

Warning Signs Supporting High Cost Credit Claims

Key indicators that strengthen complaints include:

• Income already committed to existing debts
• Using overdrafts or other credit for basic expenses
• Multiple loan applications in a short period
• Borrowing to pay off other debts
• Clear financial distress at application

How High Cost Credit Claims Work

Understanding the process helps you make informed decisions about whether to proceed with a complaint against these lenders.

Initial Review

Start by examining your loan agreement and circumstances at the time of borrowing. Consider whether proper assessments were conducted regarding your ability to repay throughout the loan term. This forms the foundation of most high cost credit claims.

Making Your Complaint

Submit a detailed complaint explaining why the lending was unaffordable. Include information about your financial situation at the time and evidence of inadequate affordability checks. Well-documented high cost credit claims have better success rates.

The Lender’s Response

Companies must investigate thoroughly and provide a Final Response Letter within eight weeks. This should address your concerns and explain their decision regarding your high cost credit claims.

Next Steps Available

If you’re unhappy with the response, the Financial Ombudsman Service offers free, independent review of complaints. They’ll examine evidence from both sides before making a binding decision on high cost credit claims.

What Successful High Cost Credit Claims Achieve

When complaints succeed, outcomes typically include:

• Interest refunds on unaffordable lending
• Balance adjustments or reductions
• Removal of adverse credit information
• Additional compensation where appropriate

Results depend on individual circumstances and the severity of lending failures identified in your high cost credit claims.

Building Your Case

Strong evidence for high cost credit claims includes:

• Proof of financial difficulties when you applied
• Documentation showing existing debt commitments
• Bank statements demonstrating income and expenditure
• Evidence of borrowing to maintain repayments
• Records of multiple applications to high cost lenders

Your Options and Rights

Several paths are available for pursuing high cost credit claims:

• Complain directly to the lender (free)
• Escalate to the Financial Ombudsman Service (free)
• Seek professional assistance (fees apply)

Each option has merits depending on your circumstances and confidence in handling the process.

Common Lenders in This Market

These companies frequently appear in affordability complaints and high cost credit claims:

• 118 118 Money – Information about 118 118 Money complaints
• Bamboo
• Likely Loans
• Everyday Loans
• SafetyNet Credit

Taking Action

1. Gather your loan documents and financial records
2. Document your circumstances when borrowing
3. Consider the impact on your finances
4. Decide whether to proceed independently or seek help
5. Submit a clear, factual complaint

Remember, successful high cost credit claims require evidence of irresponsible lending practices, not just that repayments became difficult later.