Payday lenders set for testing time

Payday lenders could be facing further legal action after the High Court delivered a verdict on repeat borrowing. 

A test case for regulations covering irresponsible lending found that a payday loan form breached their obligations by allowing customers to repeatedly borrow money. 

It found that such continuous borrowing can be an accurate indicator of financial health and that lenders’ failure to consider the financial difficulties of their customers could cause an unfair relationship. 

The High Court decision in the test case Kerrigan v Elevate was that lender Elevate Credit International Limited – better known as Sunny – breached the requirements of the Consumer Credit Sourcebook by granting loans without adequate assessment of their borrowers’ circumstances.  

The ruling was that Sunny failed to take their customers’ financial health into account, granting repeat borrowing when that should have been a warning sign as to the customers’ financial well-being. The loans are said to have had an adverse impact on their financial situation and their ability to make the repayments. 

With regard to a claim of an ‘unfair relationship’ existing, based on repeat borrowing, the judge said there was a failure on Sunny’s part to consider the financial difficulties caused by repeat borrowing, which may be justification to call the relationship unfair under the Consumer Credit Act 1974. 

Repeat borrowing

The defendant allowed customers to repeatedly borrow money, with one of the 12 claimants in the case having taken out 51 loans and 119 debts in a year. 

Key takeaways from the test case Kerrigan v Elevate:
  • A firm cannot always rely solely on information provided by a customer applying for credit or an existing customer’s repayment record alone. The regulations require an assessment which is proportionate but which goes beyond the mere commerciality of the loan (ie it would not be in a lender’s interest to lend to someone who could not repay the loan) which, in the cases considered by the court, were typically for amounts between £100 and £950. Firms should ensure that any credit extended will not adversely affect a customer’s financial situation.
  • Repeat borrowing at high interest rates is a warning sign relevant to an assessment of a potential borrower’s credit worthiness.
  • A borrower claiming that a regulatory breach has taken place will still be required to prove causation, something which the High Court reflected may be harder to do in circumstances where it may be said that, following a thorough assessment, the borrower would probably have applied elsewhere to a third-party lender able to extend the credit.
  • A breach of the Consumer Credit Sourcebook (CONC) rules may lead to an unfairness in the relationship between lender and customer. A breach of the rules will not, however, be the only factor to consider when assessing fairness.
  • Where a borrower is dishonest in the information they provided, to the extent it has a direct effect on the existence of the relationship, this may undermine any claim by the borrower that the relationship was unfair.
  • While willing to agree that the lender’s systems had led to a breach of the regulations and – in some cases – an unfair relationship, the court refused to recognise that the defendant had a duty to take reasonable care in undertaking its creditworthiness assessment not to cause a customer psychiatric injury, as was put forward by one claimant.
  • Sunny, which was placed into administration shortly before the judgement was handed down, had been lending at high interest rates and promised customers that the money loaned would hit their borrowers’ accounts within 15 minutes. They had also traded as 1 Month Loan and Quid. 

    Their business model was lending relatively small amounts but with great frequency and often permitting customers to have several loans open at one time, referred to as High-Cost Short-Term Credit (HCSTC).  


    Sunny had been upholding just 8% of the complaints they had received in 2019 but, when cases were referred to the Financial Ombudsman Service, they had agreed with the customer in more than three-quarters of cases. Sunny’s American parent company was, however, rejecting these FOS adjudications, claiming that greater clarity was needed from the UK regulators.

    The case was brought by a sample of 12 claimants. These were selected from a group of 350 with the claimants’ lawyers selecting six and the defendants six.


    The claimants – all of whom had borrowed money at least five times under regulated consumer credit agreements over various periods between 2014 and 2018 – alleged that Sunny’s credit assessments were inadequate, and that loans should not have been granted, given a lack of clear and effective policies.

    In judgement, HHJ Worster said: “It is apparent… that the defendant did not take the fact or pattern of repeat borrowing into account when considering the potential for an adverse effect on the claimant’s financial situation.

    “There was no attempt to consider whether there was a pattern of borrowing which indicated a cycle of debt, or whether the timing of loans – for example paying off of one loan very shortly before the application for another – indicated a reliance or increasing reliance on…credit.

    “In simple terms there was no consideration of the longer-term impact of the borrowing on the customer.