Debts written-off for customers of collapsed payday loan firm – how to spot a payday loan scam

A payday loan company based in the north west has gone bust. Fernwood Financial Limited went into liquidation on 27 June.

Liquidators from Aurora Equity & Development Limited are contacting all customers informing that their loan balances have been written off in full. This is unlike most cases where customers are still expected to repay their loans even after a firm goes bust.

Customers are being warned that if anyone contacts you demanding repayment, report it immediately to the liquidators, as it could be a scam.

What are payday loans?

Payday loans are short-term loans designed to provide quick cash before your next payday. They’re often small amounts, sometimes as low as £50, but come with very high interest rates.

The danger is that if you can't repay on time, you may end up taking out new loans to cover the old ones, leading to a debt spiral that’s hard to escape.

The fall of payday lenders

Fernwood Financial is just the latest payday lender to shut down.

• In 2018, Wonga, one of the UK’s largest payday lenders, went bust.

• In 2020, Sunny collapsed, affecting around 50,000 customers.

The downfall of these companies has been linked to tighter regulations. Some firms also blame the impact of the pandemic.

Many payday loan firms, like Wonga, were heavily criticised for targeting vulnerable people, including students, with misleading or irresponsible adverts.

In response, the Financial Conduct Authority (FCA) introduced strict rules in 2015 to protect borrowers. These included:

• capping daily interest at 0.8%
• limiting default charges to £15
• ensuring no borrower repays more than double the amount borrowed

Wonga alone had to write off £220 million in debts for hundreds of thousands of customers after these rules came into effect.

Borrowing responsibly

If you're struggling financially, payday loans might seem like a quick fix, but they can come at a high cost. Always:

• Explore alternatives, such as borrowing from a friend or family member but make sure you know all the risks first.

• Applying for a grant could be another option. Turn2us Grants Search has over 1,400 grants to support individuals looking for financial help.

• Understand the full cost before borrowing.
• Avoid repeat borrowing, which can trap you in long-term debt.
• Have a clear out and turn unwanted items into cash

• Reducing your monthly spending might be enough to avoid the payday loan trap. Use our free budget calculator to help take greater control of your finances.

Are payday loans scams?

Payday loans themselves are legal and regulated in the UK, as long as they’re offered by firms registered with the FCA.

But there are scams out there. Some fraudsters pretend to be payday loan companies to trick people into handing over money or personal details.

How to spot a payday loan scam

Here are some red flags to watch out for:

Unsolicited offers

Be wary if you’re contacted out of the blue, via phone, email, or text, with a loan offer you didn’t request.

Upfront fees

Scammers may promise a guaranteed loan if you pay a fee first. Once paid, they vanish. Legitimate lenders deduct fees from the loan amount, not beforehand.

Unrealistic terms

Beware of promises like:

• ‘guaranteed approval’
• ‘no credit checks’
• ‘ultra-low interest rates’

If it sounds too good to be true, it probably is.

Strange payment methods

Never agree to payment via the likes of:

• gift cards
• vouchers
• cryptocurrency

These methods are untraceable and often used by scammers.

How to protect yourself

• Check the FCA register - make sure the lender is authorised by the FCA.
• Do your research - visit the lender’s official website. Look for a physical address and an FCA registration number.

Report suspicious activity - if you think you've been targeted or have fallen victim to a loan scam, report it to Action Fraud.