Payday Loan Left Behind: Can the Lender Chase the Family?

The lender pursues the estate. Not you, not the deceased's parents, not a partner who was never on the agreement. A payday loan is unsecured credit taken out in one person's name, and what happens to a payday loan when the borrower dies is that it becomes a claim against whatever that person left behind. If there is money in the estate, the claim is paid out of it alongside the other unsecured debts. If there is not, the loan goes unpaid and is written off.

That is the law, and it is worth holding on to, because the practice can look very different in the first fortnight. High-cost short-term lenders collect by taking money from a debit card automatically, and those attempts do not stop simply because someone has died. Letters continue. Texts continue. The debt may be sold to a collection agency that knows nothing about the death and writes to the last known address, where a grieving relative opens it.

None of that changes who is liable. It does mean that somebody has to write to the lender, in plain terms, and say what has happened — because until that letter arrives, the lender's systems will keep treating the account as a live one belonging to a living customer.

The short answer: the claim is against the estate

When someone dies, their debts do not disappear and they do not transfer. They attach to the estate — everything the person owned at the date of death. The personal representative, whether an executor named in a will or an administrator appointed where there is none, gathers in the assets, pays the debts out of them in the order the law requires, and distributes whatever is left to the beneficiaries.

A payday loan sits near the bottom of that queue. It is unsecured, which means no asset was pledged against it and the lender has no automatic right to anything in particular. It ranks with the other ordinary unsecured creditors: credit cards, catalogue accounts, buy-now-pay-later balances, unpaid utility bills. Funeral costs and the proper expenses of administering the estate are paid first. Secured lenders sit outside the queue because they can look to their security instead.

Two consequences follow, and they are the ones families most often get wrong. The first is that nobody should pay a payday lender out of their own money. There is no obligation to, the payment cannot usually be recovered afterwards, and a lender that receives it will not volunteer that it was never owed. The second is that an executor must not pay one unsecured creditor in full while others go short. In an estate that cannot cover everything, the creditors share proportionately, and a personal representative who pays the loudest lender first can end up personally liable to the ones who were left out.

The situations where a living person really does owe it

There are only three, and they all involve a signature.

• A joint borrower. If two people took the credit together they are jointly and severally liable, which means each is responsible for the whole balance rather than half of it. The survivor owes all of it. This is uncommon on payday loans, which are almost always sole-name products, but it is standard on overdrafts and personal loans, so check what else was in joint names before assuming.
• A guarantor. A guarantor loan is a different product from a payday loan, and the two get confused constantly. On a guarantor loan a named third party — usually a parent or a friend — signs to cover the payments if the borrower does not make them. The borrower's death is exactly the event the guarantee was written for, and the lender will turn to the guarantor. If that is your position, the liability is real and continuing, and the same logic applies as it does to a personal guarantee that outlives the guarantor: the guarantee only ends when the lender releases it in writing.
• Someone who took the credit in the deceased's name. Rare, but it happens, and it is not the family's debt to inherit. If you suspect an account was opened by a relative using the deceased's details, say so to the lender in writing and be prepared to report it.

Outside those three, no relative is liable. Being married to the borrower does not make you liable. Living in the house does not. Inheriting from the estate does not make you personally responsible either, although it does mean you receive less, because the debts come out before the beneficiaries do.

Continuous payment authorities, and money taken after the death

This is the part that causes the most distress, because it happens automatically and it looks like the lender is helping itself.

Payday lenders do not usually collect by direct debit. They collect by continuous payment authority, an instruction attached to a debit card that lets the lender request payment from the account whenever it chooses, for whatever amount it decides. It is a different mechanism from a direct debit and it is cancelled differently.

Two things need to happen, and they should happen in the same week.

1. Tell the bank about the death. The sole account will be frozen and the debit card cancelled, which removes the route the lender was using. You will need a death certificate; most banks now have a single bereavement team that handles this for all of the deceased's accounts at once.
2. Tell the lender in writing to cancel the authority. Do not rely on the bank alone. Put it in a letter or an email, keep a copy, and ask for written confirmation that the authority has been cancelled and that no further collection attempts will be made.

Anything the lender collected after the date of death should come back. The authority was the deceased's, and it did not survive them. Ask for the money to be returned to the estate rather than credited to the loan account, and give the date of death as the cut-off. If the firm resists, the bank can also be asked to reclaim payments taken from the account without a valid authority.

It is also worth knowing what the lender was allowed to do while the borrower was alive. Financial Conduct Authority rules for high-cost short-term credit limit a lender to two attempts to collect under a continuous payment authority on a given agreement, and prevent it from using the authority to take a part-payment. A history of repeated small grabs at an account is not normal practice, and it is a reasonable thing to complain about.

Interest, charges and the cap on what the estate can be asked for

Once a lender has been told that its customer has died, it is expected to stop interest and charges and to freeze the account while the estate is sorted out. Ask specifically for a statement showing the balance as at the date of death, and treat that figure as the claim. If a later demand is higher, ask what was added and on what basis.

There is also a hard ceiling on this kind of borrowing, which limits how bad the number can get. Since January 2015 the cost of high-cost short-term credit has been capped by the regulator. Interest and charges cannot exceed 0.8% per day of the amount borrowed, default charges are capped at £15, and the total cost of the credit — interest, fees and charges combined — can never exceed 100% of the sum originally lent. A borrower can never be required to repay more than twice what they took out.

Source: Financial Conduct Authority, Consumer Credit sourcebook (CONC) chapter 5A, cost cap for high-cost short-term credit, in force from 2 January 2015.

That matters when a demand arrives that seems out of all proportion to a small original loan. Work out what was borrowed and double it. If the figure being claimed is higher, something is wrong, and the estate should say so rather than pay. Refinancing is also limited: a lender may not roll the same agreement over indefinitely.

What to write, and what to do when a collector calls

One letter does most of the work. Send it to the lender and to any collection agency that has written, and keep proof of posting. It should give the deceased's full name and address, the date of death, the account or agreement reference, and a copy of the death certificate. Then set out four requests plainly: freeze interest and charges from the date of death, cancel the continuous payment authority, provide a statement of the balance at the date of death, and direct all future correspondence to you as the person dealing with the estate.

Payday debt is frequently sold on. A debt purchaser that buys the account takes it subject to the same rules, and it is entitled to nothing more than the original lender was. If a collector contacts a relative who never signed anything, the answer is short: the borrower has died, you are not liable, correspondence should go to the estate. Put that in writing once. If it continues, complain to the firm, and then to the Financial Ombudsman Service, which is free and can require a firm to put things right. Pressing a bereaved relative for a debt they do not owe is not a grey area.

Time is on the estate's side rather than the lender's. In England, Wales and Northern Ireland an ordinary contract debt generally becomes unenforceable in court six years after the cause of action arose, provided no payment or written acknowledgement has been made in the meantime. That last point matters: a well-meant part-payment can restart the clock on a debt that was nearly out of time.

If the estate cannot pay

Plenty cannot. An estate is insolvent when the debts exceed the assets, and it is dealt with under a statutory order of priority that mirrors bankruptcy: reasonable funeral expenses and the costs of administering the estate first, then the ranked classes of creditor, with the ordinary unsecured creditors sharing what is left in proportion to what they are owed. A payday lender owed a few hundred pounds gets the same rate in the pound as every other unsecured creditor. It cannot jump the queue by being persistent.

Administering an insolvent estate is genuinely risky for the person doing it, because the risk sits with them personally rather than with the estate. If you are minded to take it on, two protections are worth having. Advertise for creditors you do not know about, using the statutory notice that protects executors against unknown claims, and be sure you have found everything before you pay anyone, including debts that arrive late such as the final tax bill of a self-employed person. If the picture is worse than you are willing to manage, remember that you do not have to accept the job at all: you can refuse to act as executor of a debt-ridden estate, but only if you renounce before you start dealing with the assets.

What decides whether the family loses anything is simple arithmetic. Unsecured debts are paid out of the estate before the beneficiaries receive a penny, so every pound of payday borrowing is a pound less inherited. That is why the position is often worse in estates where the main asset is the house and the borrowing has been quietly building against it, as it is with equity release, where what is left for the family depends on how the debt has rolled up.

Life cover is the ordinary answer to that arithmetic. A level term policy pays a fixed lump sum if the person dies within the term, and where it is written in trust the money reaches the people it was meant for without waiting for probate and without being swallowed by the estate's creditors. Nothing is guaranteed in advance — cover is offered on the basis of health, age and occupation, and what a policy will actually pay depends on the terms it is written on — but it is the only mechanism that reliably puts cash in a family's hands at the moment the bills arrive. You can get life insurance quotes through an FCA-authorised broker if you want to know what the position would be in your own case.

Scotland and Northern Ireland

The consumer credit rules and the regulator's cost cap are the same across the United Kingdom, so the lender's rights and the ceiling on what it can charge do not change with the border. What changes is the estate machinery and the time limits.

In Scotland the personal representative is an executor who applies for confirmation rather than a grant of probate, and an insolvent estate can be sequestrated rather than administered under the English insolvency rules. Scotland also treats old debts far more decisively: under the short negative prescription most consumer debts are extinguished after five years without acknowledgement or payment, which means the obligation is gone rather than merely unenforceable. If the deceased had already entered a formal Scottish debt arrangement, that has its own consequences, set out in our guide to a Scottish trust deed when the debtor dies.

In Northern Ireland the framework is closer to that of England and Wales, but the legislation and the registry are separate, and applications are made through the Probate Office of the High Court in Belfast. Free and independent help is available across the UK from MoneyHelper, Citizens Advice and StepChange, all of which deal with debt after a bereavement and none of which will sell you anything. There is more on the rest of this subject in our guide to debt, credit and finance after a death.

Frequently asked questions

Can a payday lender chase the family after the borrower dies?

Only the estate, unless a relative signed as a joint borrower or as a guarantor. High-cost short-term credit is unsecured, so it ranks with the other unsecured claims and is written off if the estate cannot pay it. Tell the lender in writing, enclose the death certificate, and ask for all correspondence to be directed to the person dealing with the estate.

How do I stop the lender taking money from the account?

Payday lenders usually collect by continuous payment authority attached to a debit card rather than by direct debit. Tell the bank about the death so the account is frozen and the card cancelled, and separately instruct the lender in writing to cancel the authority. Any payment taken after the date of death should be refunded to the estate.

Does interest keep building after the death?

It should not, once the lender has been told. Financial Conduct Authority rules cap the total cost of high-cost short-term credit, and lenders are expected to stop interest and charges when they learn that a customer has died. Ask for a statement showing the balance as at the date of death, and query anything claimed above that figure.