In Q1 of 2019, the Financial Ombudsman Service confirmed that an unprecedented 83% of guarantor loan complaints had been successful.
This figure is great news for those who’ve suffered financial hardship because of guarantor lenders. And it’s worth noting that in the previous year, the success rate was only 32%.
The Rise in Claim Success – An In-Depth Explanation
Affordability – What Should Guarantor Loan Lenders Check?
Prior to a guarantor loan being provided, the lender must ensure that both the primary borrower and the guarantor can afford the repayments for the entirety of the loan.
This means that both parties should have been asked about their income and expenditure (which includes things such as rent/mortgage, council tax, utilities, groceries, transport and so on). They must also verify these expenses, by looking at your bank statements, for example.
However affordability is far from the only thing that lenders have been slipping up on, as you’re about to read…
What Have the Lenders Been Getting Wrong?
In the complaints that have been upheld by the Financial Ombudsman, there have been six mistakes identified. In each case the lender has made one or more of the following mistakes…
- They only undertook a brief check on the primary borrower because there was a guarantor to guarantee the payments. Lenders must always ensure the loan is affordable, regardless as to the financial circumstances of the guarantor.
- Either or both the primary borrower and guarantor gave answers to questions about their expenditure that were underestimated. This may have been through guessing or because they were in financial trouble and were desperate to secure the loan. Whatever the reasoning, the figures should have been identified as being too low and the lender should have then verified the numbers.
- The primary borrower didn’t provide details of all their debts. Whatever they provided should have been verified against their credit report.
- If the income of the primary borrower or the guarantor was irregular the lender should have ensured that the loan was still affordable.
- The primary borrower had undertaken recent applications for credit, and there were other warning signs of financial issues on their credit report. Despite guarantor loans being designed for use by those with bad credit, the lender still has a responsibility to assess whether a financial situation is worsening.
- Where a loan top-up is provided, the lender must look into whether there have been any missed payments on the previous loan. If so, the lender must consider whether the financial circumstances have worsened and whether a new loan would be affordable.
What Happens If the Ombudsman Finds That The Loan Shouldn’t Have Been Provided?
If the Financial Ombudsman Service rules in your favour, the outcome to resolve this issue will rely on whether the loan has been repaid yet. Let’s look at both situations…
- If the loan has been repaid, the interest that has been paid will be refunded to the primary borrower, or to the guarantor if they have contributed towards the payments;
- If the loan remains outstanding, the interest would be removed from the amount owing. You would then only repay the amount you borrowed. Your lender should also create a repayment agreement that involves affordable monthly repayments (they should not chase the guarantor for the balance).
The Final Word
Lenders are now becoming more responsible in the way that they handle complaints. This is a logical follow on from more appeals being won with the Ombudsman. After all, it’s cheaper for them to settle earlier on and deal with the complaint properly, than go through expensive legal processes that lead to their paying after the Financial Ombudsman’s decision.
That said, lenders are still rejecting complaints, often citing reasons such as:
- The loan was affordable
- The regulator doesn’t require us to check bank statements
- We make our decision to lend on your application – which was inaccurate due to the information you provided
Do not let their response deter you. Although in fewer numbers, lenders are still providing these responses in the hope that you simply give up on your complaint.