A test case for regulations governing irresponsible lending could pave the way for further lawsuits against payday lenders, according to a lawyer acting for a group of claimants who had been encouraged to enter a “debt cycle.”
In Kerrigan vs. Elevation, the High Court found that payday lender Elevate Credit International Limited – better known as Sunny – had violated Consumer Credit Sourcebook requirements by allowing customers to borrow money multiple times.
The case was brought by a sample of 12 plaintiffs chosen from a group of 350. They alleged that Sunny’s credit rating was inadequate; that loans should not have been granted in the absence of clear and effective policies; and that the company breached its legal obligation under a section of the Financial Services and Markets Act 2000.
Sunny, who went into administration shortly before the judgment was handed down, loaned 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 with the company, accumulating a total of 119 debts in one year.
In the judgment, HHJ Worster said: “It is evident (…) that the defendant did not take into account the fact or pattern of repeated borrowing when considering the potential for negative effect on the financial situation of the applicant.
“There has been no attempt to determine whether there was a borrowing pattern indicating a cycle of indebtedness, or whether the timing of the loans (for example, repaying a loan very shortly before the application another) indicated an increasing dependence or dependence on … credit. Simply put, the long-term impact of the loan on the customer has not been taken into account.
In response to the “unfair relationship” allegation based on repeated borrowing, the judge said the lender failed to take into account the financial hardship that repeated borrowing could result in an unfair relationship.
However, the negligence claim for bodily injury (aggravation of depression) was dismissed.
The plaintiffs were represented by consumer credit law specialist Barings Solicitors, while Elevate Credit International Limited was represented by London law firm Edwin Coe LLP.
Erich Kurtz, director of Barings Solicitors, said the judgment confirmed that when a consumer made repeated requests for payday loans, lenders would violate their obligations under the Consumer Credit Sourcebook for failing to perform a proper assessment which could then amount to an unfair relationship.
He added that payday lenders could face more lawsuits in the years to come if they remain in business. “Over the past two years, lenders have expressed concerns about the lack of clarity in their regulatory obligations, this judgment should help with this clarification,” he said.
A case against another U.S.-backed payday lender is due to be heard by the High Court in December.
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