If a loan is deemed unaffordable, borrowers may be entitled to redress, such as a refund of interest or fees, or adjustments to the terms of the loan.
Irresponsible/Unaffordable Lending
Irresponsible/Unaffordable Lending
The category of “irresponsible lending” or “unaffordable lending” refers to situations where a lender fails to properly assess whether a borrower can afford a loan without undue financial hardship, as required by regulations set by the Financial Conduct Authority (FCA).
Key aspects include:
- Affordability Assessments: Lenders must assess whether the borrower can make repayments without compromising their ability to meet other financial commitments, such as household bills or living expenses.
- Consumer Credit Act 1974: This law regulates consumer credit agreements, including car finance, and provides protections for borrowers.
- Breach of FCA Rules: The FCA requires lenders to ensure loans are affordable, and failure to comply can lead to a complaint through the Financial Ombudsman Service (FOS) or legal action.
If a loan is deemed unaffordable, borrowers may be entitled to redress, such as a refund of interest or fees, or adjustments to the terms of the loan.
Affordability Complaints
What is “Affordability”?
Here’s a summary of the regulator’s rules:
- Checking Affordability at Application:
- Lenders must assess whether credit is affordable before approving it.
- The level of scrutiny depends on the type of credit. For instance, a mortgage application might require bank statements, whereas a £200 catalogue credit may need less detailed checks.
- Reassessing Affordability for Credit Limit Increases:
- Lenders should carry out new checks before increasing a credit limit to ensure it remains affordable.
- Defining Affordability:
- Credit isn’t affordable if repaying it leaves you without enough money for essential expenses, bills, or other debts.
- Signs of Unaffordable Borrowing:
- Relying on further borrowing to make ends meet—such as using a credit card to pay for necessities after making the minimum repayment—indicates the credit is unaffordable.
- Repayment Within a Reasonable Timeframe:
- Repaying only the minimum amount is acceptable for a short time but not over an extended period.
How to Complain
Reasons to Complain
You may have a valid complaint if the lender failed to recognize affordability issues. Consider these situations:
What You Need to Start Your Complaint
- Details of Credit Limit Increases: You don’t need specific dates; stating “my limit was increased several times” is sufficient.
- Credit Records: Your current credit report (e.g., a free TransUnion statutory report) can help demonstrate pre-existing issues.
- Complaints Process:
- Best Method: Submit your complaint via email for a clear record.
- Include your account details, date of birth, and the email address linked to the account.
Points to Consider
- Timing: Complaints can be made for open, closed, or sold accounts, including those with CCJs.
- Evidence for Old Accounts: Complaints for issues over six years old may be harder to support, but the FOS can decide whether to investigate.
- Debt Alternatives: If your financial problems are significant, consider debt solutions like a debt management plan (DMP).
- Refund Expectations: A refund typically covers interest and fees.
Responding to Rejections
- Rejections: Lenders often reject complaints or offer low refunds. If you believe your rejection was unfair, consider escalating to the Financial Ombudsman Service.
