A test case for regulations governing irresponsible lending could pave the way for new lawsuits against payday lenders, according to a lawyer acting for a group of plaintiffs who had been encouraged to enter a “cycle of debt”.
In Kerrigan vs. Risethe High Court found that payday lender Elevate Credit International Limited – better known as Sunny – breached the requirements of the Consumer Credit Sourcebook by allowing customers to borrow money repeatedly.
The case was brought by a sample of 12 plaintiffs selected from a group of 350. They alleged that Sunny’s credit assessment was inadequate; that the loans should not have been granted at all in the absence of clear and effective policies; and that the company has breached its legal obligation under a section of the Financial Services and Markets Act 2000.
Sunny, who went into administration shortly before the judgment, lent at high interest rates and promised the money would be in clients’ accounts within 15 minutes. In one case, an applicant took out 51 loans from the company, racking up a total of 119 debts in one year.
In his judgment, HHJ Worster said: “It is apparent … that the defendant failed to take into account the fact or pattern of repeated borrowings when considering the potential to adversely affect the plaintiff’s financial condition. .
“There was no attempt to determine whether there was a pattern of borrowing indicating a cycle of indebtedness, or whether the timing of loans (for example, repayment of a loan very shortly before application another) indicated a reliance or growing reliance on …credit. Simply put, there was no consideration of the longer term impact of the loan on the client.
In response to the allegation of an “unfair relationship” based on repeated borrowing, the judge said that the lender’s failure to consider the financial hardship that repeated borrowing could cause an unfair relationship.
However, the negligence claim for personal injury (aggravation of depression) was dismissed.
The claimants were represented by consumer credit law specialist Barings Solicitors, while Elevate Credit International Limited was represented by London firm Edwin Coe LLP.
Erich Kurtz, director of Barings Solicitors, said the judgment confirmed that when a consumer makes repeated requests for payday loans, lenders would violate their obligations under the Consumer Credit Sourcebook for failing to conduct a proper assessment that could then amount to an unfair relationship.
He added that payday lenders could face more lawsuits in the coming years if they stay in business. “Over the past two years, lenders have raised concerns about the lack of clarity in their regulatory obligations, this judgment should contribute to that clarification,” he said.
A case against another US-backed payday lender is due to be heard in the High Court in December.
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