Which? calls on payday lenders to cut high fees

Following a new Which? investigation we believe that payday lenders are acting unlawfully by charging excessive default fees.

Ten of 17 leading payday lenders we looked at have default fees of £20 or more, and four charged £25 and above, with Wonga topping the table at £30.

Which?’s legal opinion is that excessive default fees are unlawful under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), which state it is unfair for lenders to charge a disproportionately high fee if borrowers default on a loan.We have written to the worst offenders to challenge the level of their default fees, which we believe should be no higher than the administrative costs associated with defaulting.

High charges are one of the biggest factors that tip borrowers into a spiral of debt. Previous Which? research has found that more than half of payday loan users (56%) had incurred charges for missed or bounced credit repayments over 12 months, compared to 16% for all credit users. One in five payday users (20%) said they had been hit with ‘unexpected charges’.

Some payday lenders impose significantly lower default charges of £12. In 2006, the Office of Fair Trading found that penalty charges for credit cards should be no more than £12, unless there are exceptional factors.

We have been calling for the Financial Conduct Authority (FCA) to introduce a cap on the level that firms can charge in default fees, as part of the cap on the total cost of credit planned for January 2015.

We believe payday lenders are exploiting consumers’ optimism they can repay on time by using excessive penalty fees to reduce headline rates and lead consumers to under-estimate the true cost of credit. Our previous research found that half (48%) of payday loan users took out credit it turned out they couldn’t afford to repay.

Richard Lloyd, executive director at Which? said:

“We believe payday lenders are exploiting borrowers with excessive fees which can push them even further into debt. If they cannot justify why these charges are so high and refuse to cut them, we would look to take further steps to protect vulnerable consumers. The regulator must also take action to ensure all fees are fair, proportionate and only reflect lenders’ costs.”

Which? recently launched its ‘Clean up Credit’ campaign which calls for the FCA to clamp down on excessive charges and irresponsible lending, and to make sure borrowers are being treated fairly whatever form of credit they’re using. The Which? Consumer Rights website has information and advice on how to complain about a payday lender. Visit www.which.co.uk/paydaycomplaint for more information.

Notes to Editors:

Summary of Which? investigation into default fees charged by payday lenders:


Payday Lender Fee charged for failing to repay the loan on the due date (£s)




MyJar.com (a)




247moneybox.com (b)


Minicredit.co.uk (c)


MrLender.com (d)




Swiftmoney.co.uk (e)














Safeloans.co.uk (f)


Zebit.com (g)




[a] £25 charged if a first reminder is needed because that the payment has been missed, a further £25 charged after 10 days after if a second reminder is needed

[b] £20 failed collection fee. Up to 5 letters will be sent to remind the borrower that the payment is due, each of which will be charged at £10 (the first letter is free)

[c] “If you do not pay or we are unable to collect full payment from your debit card one day after the Payment Due Date £20. If you do not pay or we are unable to collect full payment from your debit card on a second attempt four days after the Payment Due Date £20. Charge £50 if after 30 days after the Payment Due Date you still have not paid in full. Charge for each subsequent attempt to collect payment from your debit card after the first attempt £5.”

[d] “If you fail to make a repayment on the due date we shall charge you a late payment fee of £20. Unless we have agreed that you may defer making payment the following fees will be charged. If we have to write to you regarding your non-payment we will charge you a fee of £20. If we have to serve you with a default notice we will charge you a fee of £20.”

[e] Charge a £20 arrears fee (when payment remains unpaid on the due date), a £15 default fee (when the account remains in default 34 days after the relevant due date) and a £50 collections fee (when the account remains in default 48 days after the relevant due date).

[f] “If you have not contacted us or resolved the situation by the end of the business day you will be charged a missed payment fee of £12.00. If you do not contact us your account is referred to a collections specialist and you will be charged a referred collection cost of £30.00. Arrears letters are charged at £7.50 per letter (Maximum 3 Arrears Letters), If your debit card payment is declined with the status “Retain Card” we will send you a retain card letter charged at £7.50. If you don’t respond after we have exhausted all our arrears procedures on day 60 we will freeze your account and no further interest will be added.  We will then send you a “Default Notice” letter with an OFT fact sheet outlining the breach of the agreement and the remedy needed to rectify the breach. The Default Notice and OFT fact sheet letter is charged at £12.00.”

[g] Charge a £12 arrears fee (when payment is not made on the due date), a £10 default fee (when the account remains in default after 36 days after the relevant due date), and a £40 termination fee (if your account is in default and Zebit and you do not reasonable agree to a repayment plan or if you do not honour a repayment plan agreed and we refer your account to a debt collection agency.

1.    Populus, on behalf of Which?, interviewed a random sample of 4,031 GB adults aged 18+ online between 10th and 12th August 2012.  Surveys were conducted across the country and the results have been weighted to the profile of all GB adults. All stats referring to credit users are based on 3,195 consumers who said that they use at least one credit product. Populus is a founder member of the British Polling Council and abides by its rules.

2.    Which?’s Clean Up Credit campaign has set out five ways the FCA should act to clean up the whole of the credit market and send a clear message to irresponsible lenders:

·                  Ban excessive default fees and charges – the FCA should require that the level of default charges should reflect lenders’ actual costs, and there should be a cap on the total amount of default charges.

·                  Crack down on irresponsible lending – the FCA should enforce strong rules on affordability checks that properly take into account a borrower’s income, expenditure and ability to repay the debt, including any outstanding credit commitments.

·                  Put people in control of their credit – end unsolicited increases in credit limits, unauthorised overdrafts should be opt-in only and there must be a limit to the number of times high-cost loans can be rolled over.

·                  Clear and transparent information – the cost of credit and all fees and charges should be transparent, and for high-cost credit should be displayed clearly as pounds per £100 borrowed over 30 days. Credit products should come with clear health warnings explaining the consequences of missed payments.

·                  Swift and early intervention for people in financial difficulty – the FCA should force lenders to freeze charges for borrowers in difficulty, and prevent them from charging interest on high-cost loans beyond 30 days after borrowers default. Lenders must help borrowers in difficulty and refer them to free independent debt advice.

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