Some people are wrongly provided with lending they cannot afford to pay back. This might be because their income is so low or unreliable, that they can barely afford their essential living costs, let alone additional borrowing.
All of the following extracts have been taken from legally-binding outcomes – ruling in the customer’s favour and stating that the lender acted wrongly:
“Under the rules of maternity pay run by Miss O’s employer she was due to receive eight weeks full pay, 18 weeks at half pay, 13 weeks SMP and then there would be a period of 13 weeks unpaid. I think this information would have been important in assessing whether a credit agreement was sustainably affordable. I don’t think it would be discriminatory to ascertain how Miss O intended to meet the payments going forward. I disagree with Santander that it could be assumed Miss O may have had other resources available to cover the payments for the period of her maternity of leave as that wasn’t the case, Miss O says she had, at maximum, a savings pot of around £150 available. So, I think this information should have been requested.
Santander also says that Miss O’s usual monthly income was around £1,370 pm and although I accept she may have chosen to return to work full-time in the future I don’t think I can reasonably say that her income should be considered at her pre-maternity leave figure when looking at whether this credit agreement was affordable. I think it would be fair to look at her actual income and expenses at the point she took out the agreement. So, I think Santander should have taken Miss O’s income as being £698pm assessing whether it would be affordable for her.”
“Miss G says that NewDay shouldn’t have allowed her to open an account and it shouldn’t have increased her credit limit once it had. Miss G says she was a student on very low income when she opened the account and that she had opened other credit accounts and was gambling too.”
“Miss G provided bank statements from around this time. They showed that her existing credit repayments accounted for more than half of her income a month and that after the payment of essential expenses such as food and travel, Miss G had very little disposable income each month. The additional borrowing would have left her with an estimated £7.55 in disposable income a month if she had utilised it fully.”
State Benefits (means tested)
“Bamboo would also have seen that Mr S’ income was supplemented from time to time by benefit payments. Whilst it has said this wouldn’t be a reason not to lend to a borrower, I think it’s fair to say that Mr S received benefit that was means tested and designed to help him meet essential living costs. It wasn’t a sufficient amount to boost his income up to the level Bamboo had assumed he had and it can’t fairly or reasonably be considered as surplus income available to repay new debt.”
“Mr G was unemployed and receiving jobseeker’s allowance when he bought the car, although he had written confirmation of a new job beginning the following month. The salary he gave the dealership was based on expected full-time earnings from his new employer. As it turned out, he was given fewer hours than anticipated so his earnings were considerably less than this.
Creation argues that “a certain onus rests on the consumer to ensure that they can afford the monthly obligations they are agreeing to”. Whilst I wouldn’t disagree with this, this does not absolve Creation from its responsibility to conduct a “sound and proper credit assessment”, as required by the Finance and Leasing Association’s Lending Code. I am satisfied that Mr G provided sufficient information that should have prompted a more thorough assessment of whether he could afford the loan.”