Payday loan of $100 becomes a debt of $566

The story 

Bruce applied for a $100 loan over the telephone.  The finance broker’s staff member advised Bruce he would have to pay the finance company $105 and the finance broker $155.  The staff member asked Bruce to confirm he could afford to make seven $34 payments and one final $22 payment.  Bruce agreed he could afford these payments.  The $100 was deposited into Bruce’s account overnight and he started repaying the loan at $34 a week.  Before the final $22 payment was made Bruce contacted a Citizen’s Advice Bureau for help because he believed he had paid too much.  The Citizen’s Advice Bureau referred Bruce to us. 



The Citizen’s Advice Bureau explained Bruce understood he had borrowed $100, and had to repay $105.  Bruce had not missed any of the $34 payments and could not understand why his debt to was so great.  Bruce did not pay the final $22 payment. 


FSCL’s review 

We referred the complaint to the broker.  The broker confirmed Bruce had borrowed $260, and was satisfied the correct information was given to Bruce in the telephone conversation with its staff member.  The broker advised Bruce’s debt was now $566, being the extra interest and fees added to the $22 still owing on the loan during the three months it took for the complaint to be referred to the broker, considered by its internal complaints process, and referred back to us.  The broker offered to reduce this debt to $340, to be repaid at $34 a week.  We did not consider this settlement to be reasonable and commenced our investigation. 

We listened to the telephone conversation between Bruce and the broker’s staff member.  Although the staff member referred to loan amounts of $105 and $155, she did not mention the figure of $260, being the total amount of the loan.  We were concerned that the way the information was presented to Bruce may have been misleading. 



However Bruce did confirm he would make seven $34 payments, and a final $22 payment.  We suggested the broker accept $22 in full and final settlement of Bruce’s debt and that the broker write off the extra interest and fees charged to the account over the past three months.  Both the broker and Bruce accepted our suggestion and the complaint was resolved. 



Even a small $100 loan will incur interest and fees. Generally speaking the interest amount will often be the same as or more than the loan sum borrowed. So in this case a $100 loan cost Bruce $260 to repay.