Moneybarn

Moneybarn is a sub-prime lender, typically providing car finance to customers with lower-than-average credit ratings. Despite the fact that its customer base would tend to struggle to repay money borrowed, many of the finance agreements Moneybarn would provide are for a lot of money – and repayable over several years.

We have seen examples where Moneybarn would be happy to lend to a customer without having a good grasp of that specific customer’s outgoings and typical monthly expenses. Without this information it would be very difficult to safely determine that a new finance agreement was going to be affordable. But instead, Moneybarn has typically been happy to lend where the monthly repayment for the finance is less than 25% of the customer’s income:

Moneybarn had a duty to assess if the loan was affordable to Mr G before it agreed to lend to him. It says it did this by taking steps to verify his income. It then checked whether the loan repayments were no more than 25% of his salary. Finally it did a search on his credit file.

Moneybarn says it has used this practice for a number of years. Its low default rate shows it is an accurate assessment for affordability. The problem with it in Mr G’s case however, was that it took no account of his actual expenditure. This was considerably more than 25% of his income. The 25% assessment did not accurately reflect Mr G’s outgoings.

I am unable to find that the assessment of affordability was adequate if it did not also consider Mr G’s actual commitments and expenditure. I cannot see how an assessment of his ability to meet repayments in a sustainable manner could be made without considering information about Mr G’s expenditure. (https://www.financial-ombudsman.org.uk/decision/DRN6992676.pdf)

Even when Moneybarn does not adopt the above ‘25% method’, we have seen examples where their affordability checks simply still do not go far enough in ensuring they are making a fair lending decision to the customer. For example, Moneybarn may use statistical data to estimate the customer’s expenditure – without actually finding out what the customer’s real expenditure was. Furthermore, Moneybarn is sometimes not even able to provide evidence that it carried out these checks:

Moneybarn says that its creditworthiness assessment requires a consumer to provide either recent payslips or recent bank statements spanning a two-month period to evidence their income. It says that, alternatively, it uses an income valiation tool provided by a Credit Reference Agency (CRA) which I understand happened in this case. Moneybarn says that it checked Mr M’s credit file for indebtedness and existing financial commitments, though it wasn’t able to provide either the results or a summary of them. And it relied on statistical datasets to estimate Mr M’s expenses. Moneybarn says that after reviewing the information it concluded that the credit would be affordable for Mr M.

Let me start by saying that this approach might constitute a proportionate check in some circumstances. In this case, I’m afraid I don’t consider it did. While I appreciate that Moneybarn may have used a CRA report to cross-check Mr M’s income level, I can’t see that it took steps to verify that he was in receipt of such an income each month. I’ve reviewed a copy of Mr M’s credit file which shows he was repaying a large loan from a high cost credit company at £400 a month. He had defaulted on seven running accounts in the previous six months which ought to have alerted Moneybarn to the possibility that Mr M was having problems managing his existing debts. And, altogether, I’m not sure statistical data was likely to have been representative of Mr M’s circumstances. Given the level of repayment required over five years, I think Moneybarn needed to do more here to adequately assess the risk to Mr M of not being able to meet his repayments over the term. (https://www.financial-ombudsman.org.uk/decision/DRN-2693402.pdf)

From the above, it is clear that Moneybarn does not usually carry out detailed checks. This inevitably leads to customers – who have problems managing their money – being approved for car finance loans, when they shouldn’t have been lent the money in the first place. For example, it is irresponsible to lend to customers who spend large amounts of their income on gambling:

To summarise, given that such a significant proportion of the payments he was making relate to gambling, I think Mr L’s spending pattern likely meant he wouldn’t have enough disposable income to afford the new borrowing. I think had Moneybarn carried out better and likely proportionate checks this would have been clear. It follows that Moneybarn ought not to have approved this finance. (https://www.financial-ombudsman.org.uk/decision/DRN-3792359.pdf)

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