If you believe you've lost out because your lender or broker wasn't authorised, or your lender didn’t have the correct permissions, you may be due compensation.
Unenforceable credit agreements
If you enter into a credit agreement but at the time you enter the agreement:
- the lender or broker (the person who arranges the loan) wasn’t authorised by us, or
- the lender was authorised by us but didn’t have the necessary permissions
In some cases, the agreement may not be legally enforceable. These credit agreements are ‘unenforceable’.
If you find out that your credit agreement is unenforceable, you may be eligible to apply for compensation from your lender.
Please note, if your lender wants to make an unenforceable agreement enforceable, they can apply to us for a Validation Order. If granted, this may allow your lender to legally enforce your credit agreement, but it will depend on the conditions set out in the Validation Order decision notice. This may stop you from being able to claim compensation.
If your lender applies for a Validation Order, they will contact you with more information.
How to check your credit agreement is unenforceable
These rules only apply to credit agreements entered into on or after 1 April 2014. They don’t apply to consumer hire agreements, for example, personal contract hire (PCH).
You may have heard from your lender or a claims management company that your credit agreement is unenforceable. But if you want to check, contact your lender. Request a copy of your credit agreement and ask whether it’s unenforceable. If you’re unhappy with the lender’s response, you can contact us[1] for assistance.
How to apply for compensation
If you believe a credit agreement you have may be unenforceable, it’s important you follow the steps below to find out whether you may be owed compensation.
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1
Contact your lender
In the first instance, you should contact your lender and tell them you believe your credit agreement may be unenforceable under S26, 26A or 27 of the Financial Services and Markets Act 2000 (FSMA). You should explain why that’s your view and ask your lender to confirm that they agree and, if not, why not.
If they agree, you can try to agree with them the amount of compensation you’re owed.
If you don’t take these steps, it may cause delays when you submit your application to us.
You can apply to us to decide the amount of compensation if:
- your lender says your agreement is unenforceable and assesses your application but doesn’t offer you compensation
- you’re unhappy with the level of compensation offered
- your lender refuses to assess your application, or
- your lender doesn’t reply to you
It’s important to note that, if your lender offers you compensation but you decide to apply to us instead, we may decide on a lower level of compensation than your lender has offered you.
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2
Complete our application form
Complete the application form[2]
If we consider that your credit agreement is unenforceable, you may be able to claim compensation for any loss you experienced due to parting with money or property under the agreement. For example, where your credit file was damaged due to the agreement, which then resulted in a financial loss.
In the application form, make sure you:
- provide details on why you think the agreement may be unenforceable
- detail each loss you’ve suffered separately and tell us how much you’re looking to claim for each example
- provide evidence in support of each loss
Please make sure you detail each loss that you want to claim compensation for. We’ll only consider compensation for losses that you specifically claim for in the application form.
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3
We'll decide whether the agreement is unenforceable
We’ll review your credit agreement to decide if:
- it’s unenforceable, and
- we have the power to decide how much compensation the lender must pay
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4
We'll assess your application
If we agree that your credit agreement is unenforceable and that we have the power to assess any compensation owed, we'll:
- let you know when a case officer has been assigned to consider this
- assess your application and keep you up to date on the process
- assess each compensation claim in your application (we’ll only assess the specific claims you make in the application form)
Please make sure you send us any additional information and evidence we ask for to help us make a decision.
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5
Our decision maker will consider your application
Once the case officer has assessed your application, they’ll make a recommendation to our FCA decision maker.
The decision maker will form an initial view on the amount of compensation to be paid. They’ll produce a draft ‘Notice of Determination’ which sets out their initial view and explains how they reached it. This is not our final decision.
We’ll share the draft Notice with you (or whoever is representing you) and your lender. This gives you and your lender the opportunity to reply to the Notice before we make our final decision. For example, you can explain anything you believe we’ve got wrong or send us any additional information or evidence.
You’ll generally have a set period (often 28 days) to reply to the draft Notice. If you need longer, contact us using the details in the draft notice.
Our decision maker will consider any points you and your lender make in your reply. If they identify further points you can help with, they’ll let you know. They’ll then decide the amount of compensation your lender should pay you and will send you and the lender a final Notice of Determination.
If we don’t get a reply from you or your lender, the draft Notice will be converted to a final Notice of Determination.
The final Notice of Determination is our final decision on your application, unless you or the lender challenge our decision before the Upper Tribunal[3].
If you don’t agree with our final decision
If either you or your lender are unhappy with our final Notice of Determination, you (or your lender) can refer the matter to the Upper Tribunal.
This must be done within 28 days of the date on which the final Notice of Determination was given. The final Notice of Determination will give more details on this process.
If you’re considering taking the matter to the Upper Tribunal, you should think about getting independent legal advice.
Using claims management companies (CMCs)
You can make an application to your lender initially and then, if appropriate, to us for free.
A CMC can take these steps for you, but you’ll have to pay a fee. If you're thinking about using a CMC, find out what to expect[4].
