Enforceability of improperly approved payday loan

Legal position:
In England and Wales, payday loan companies are regulated by the Financial Conduct Authority (FCA) under the Consumer Credit Act 1974 and the FCA's Consumer Credit sourcebook (CONC). Lenders must carry out proper affordability assessments before approving a loan, ensuring that the borrower can repay it without undue difficulty. If a lender fails to do this and the loan is deemed to have been irresponsibly lent—for example, if they approved it despite clear evidence of your inability to repay based on your income, expenses, or credit history—the loan agreement may be unenforceable in whole or part. This could mean you are not required to repay the outstanding amount, or you might be entitled to a refund of interest and charges already paid.

However, this depends on the specific facts of your case, such as the date the loan was taken out (FCA rules on high-cost short-term credit, including interest caps, have been in place since 2015), the lender's assessment process, and any evidence you have. Not every approval error automatically makes the loan unenforceable; it must have caused you financial harm, and you would need to demonstrate this. If the loan is still outstanding, the lender could still attempt to enforce it through court action, but you could defend or counterclaim on grounds of irresponsible lending.

Practical options:
Before considering any formal challenge, assess whether pursuing this is worthwhile, taking into account the loan amount, any ongoing repayments, and potential costs or stress involved. Enforcement challenges can sometimes be resolved without court, but success is not guaranteed and depends on evidence.

If you believe the loan should not have been approved, consider these steps in order:

1. Gather evidence: Collect all loan documents, correspondence with the lender, bank statements showing your financial position at the time, and any records of complaints or disputes.

2. Make a formal complaint to the lender: Write to them explaining why you think the loan was irresponsibly lent, providing evidence, and request that they waive the debt or refund payments. They must respond within eight weeks under FCA rules.

3. Escalate to the Financial Ombudsman Service (FOS): If unsatisfied with the lender's response, or if they do not reply, you can complain to the FOS free of charge. This is often the most practical route, as it is quicker and less stressful than court, and their decisions are binding on the lender (though you can reject them if you prefer). There is a time limit: usually six months from the lender's final response, or three years from when you should have realised there was a problem, whichever is later.

4. Court action as a last resort: If the FOS route is not suitable or unsuccessful, you could apply to the county court to challenge enforceability, but this involves fees (unless you qualify for fee remission), potential legal costs if you lose, and the risk of an adverse judgment. It is generally advisable only if the sums are significant and you have strong evidence.

Important considerations:
The outcome will hinge on details you have not provided, such as the loan date, amount, your financial circumstances at approval, and any steps already taken. If the lender is pursuing enforcement (e.g., via debt collectors or court), act promptly to avoid default judgments. Note that while you may have a legal defence, continuing to ignore repayments could harm your credit score in the meantime. If your query relates to a jurisdiction outside England and Wales, I must note that this assistant focuses on that area; you may wish to consult our worldwide service, Atlas, for other locations.