We deal with a significant number of cases from consumers who complain that they are in financial hardship and that their lender is not providing them with an appropriate level of help. This includes complaints that the lending was unaffordable from the outset, and should not have been allowed by the lender in the first place.
Complaints about financial hardship and affordability are often linked. The consumer’s financial difficulties may stem from unaffordable lending.
This section of our website explains how we approach complaints involving financial hardship and unaffordable lending related to consumer debt (for example, current account overdrafts, credit card debts, loans and hire purchase). It does not deal with complaints about financial difficulty in relation to mortgages.
We cannot provide debt advice. If we think that a consumer may need specialist debt advice, we give them contact details of appropriate free advice agencies.
This section explains how we usually approach the types of complaints that consumers refer to us relating to financial hardship. We have also covered some of the common misunderstandings about financial difficulties that we come across in the cases we see.
There are industry codes and regulations that cover consumer lending. All acknowledge that lenders should respond helpfully and fairly where the consumer is in genuine financial difficulty.
The regulators’ rules and the lending industry’s own codes all place a responsibility on the lender to take a fair approach to their customers in these circumstances.
This will depend on the nature of the consumer’s financial difficulties and their overall financial situation. We will decide what we think is fair, based on the individual facts and circumstances of the complaint we are dealing with. What we decide is "fair" for one particular consumer will not necessarily be fair for others.
Lenders should take special care where the consumer is vulnerable – for example, older consumers or those with mental health difficulties.
As a starting point, we look at what discussion has taken place between the consumer and their lender – that might have given the lender a reasonable understanding of the consumer’s financial position and a chance to make any appropriate offer of help.
We cannot get involved in a complaint until the lender has had a fair chance to try to sort out the matter, And from the cases we see, it is usually helpful if both sides become fully involved in these discussions.
The lender is likely to ask the consumer to provide information about one or more of the following:
It helps if the lender asks only for necessary information, and collects it in a sensitive way.
Consumers will usually refer complaints to us either because their lender has not offered any assistance to them at all or – more usually – where the lender has offered some help but the consumer does not consider that what is offered goes far enough.
Because we deal with cases on an individual basis, there are no standard or "formula" outcomes if we uphold a complaint of this type. We decide what is fair and reasonable for that particular case, taking into account the consumer’s individual circumstances as well as issues such as the law, relevant industry codes and any regulators’ rules.
This means we may need to ask the consumer for more (or more detailed) information about their financial position.
Often, a fair outcome might include the lender offering one or more of the following sorts of things:
If the lender has already offered some measures like this, we will check to see whether the overall approach seems enough to address fairly the consumer’s financial difficulties. If not, then we will decide what additional help would be appropriate. If we think that what the lender has offered is fair overall, we will tell the consumer so.
The complaints we see show that there are frequent misunderstandings by consumers and financial businesses about how complaints involving financial hardship should be approached. Here are some of the most common misunderstandings we see:
It isn’t fair for a consumer to have to give a financial business detailed information about their personal financial circumstances – it should be enough just to explain they’re in financial difficulty.
No. If the financial business is to assess how it can best help, then it will need to understand the consumer’s current financial position, including income and outgoings, other debts, and things like savings accounts. We would expect the consumer to provide this information to the business as the sensible first step towards reaching agreement. But a financial business should take care to ask only for relevant information. And it should be sensitive in how it collects it.
The fairest way of dealing with financial hardship is for the financial business to make all consumers the same standard offer.
No. Fairness always needs to take account of the individual circumstances of the consumer – a "one size fits all" approach cannot do that. After gathering the necessary information from the consumer, the financial business should put together a suitable plan of options that take account of the consumer’s particular circumstances.
If a consumer is unemployed and has no way of making realistic payments towards their debt, writing-off the debt is the only fair outcome.
No. There might be other fair outcomes – such as a period of non-repayment or low or nominal repayments. The position could be reviewed later, to see whether the consumer’s circumstances have improved.
It is essential that consumers prove they have consulted a free debt-advice agency, before they can expect any help from their financial business.
No. If the consumer needs debt advice, then the financial business should give them details of suitable free agencies that might be able to help. But that should not prevent the consumer from getting help from the financial business straight away. Consumers who feel able to handle the matter themselves should not be pressured into dealing through – or having their income and expenditure "verified" by – a debt adviser.
Consumers who spend money on things like satellite TV are obviously not in genuine financial difficulty.
No. Lenders should look properly at the consumer’s individual circumstances before reaching any conclusions about their income and outgoings. It is not generally helpful to pick on individual items of expenditure in isolation, as that will rarely convey the full picture of the consumer’s financial position and commitments.
Consumers who refer complaints to us often tell us that their financial difficulties are being made worse by charges levied on their current account – usually because they have gone over their overdraft limit, or because their bank has had to refuse some payments (such as direct debits) because there was not enough money in the account to pay them.
Consumers sometimes believe mistakenly that their bank is obliged to refund all the charges made to their account – or may not apply any future charges – if they are in financial difficulty. This is not the case.
However, a bank should respond helpfully and fairly where a consumer is in genuine financial hardship. What this means will depend on the individual circumstances of the consumer, and will not necessarily involve any refund of money.
Because we deal with cases on an individual basis, there are no standard or "formula" outcomes if we uphold a complaint like this. We decide what is fair and reasonable for that particular case, taking into account the consumer’s individual circumstances as well as things such as the law, relevant industry codes and any regulators’ rules.
Often a fair outcome might include the bank offering one or more of the following sorts of things:
If the bank has already offered some measures like this, we will check to see whether the overall approach seems enough to address fairly the consumer’s financial difficulties. If not, we will decide what additional help would be appropriate. If we think that what the bank has offered is fair overall, we will tell the consumer so.
The complaints we see show that there are frequent misunderstandings by consumers and financial businesses about how financial difficulty complaints involving current account charges should be approached. Here are some of the most common misunderstandings we see:
I have heard that consumers who are in financial hardship are entitled to have all their current account charges refunded.
No. A bank should respond helpfully and fairly where a consumer is in genuine financial difficulty, but that will not necessarily involve refunds of charges. There are various measures that might represent a fair outcome as part of putting things right.
Following the Supreme Court’s ruling in the legal case between the banks and the Office of Fair Trading, banks can no longer be expected to refund current account charges in any circumstances.
No. If, for example, a charge was incurred because of a fault by the bank in administering the consumer’s current account, then the bank would be expected to refund the charge as a normal part of putting things right for that consumer. But banks are not generally obliged to waive or suspend current account charges.
Unaffordable lending means lending that the consumer could not reasonably afford at the time it was taken out.
This could be new loans, credit card facilities and overdrafts – or increases to existing borrowing limits on these products.
Consumers who complain to us about unaffordable lending usually say that the lender should have realised they could not afford the lending – and should not have lent the money in the first place.
Some lenders mistakenly believe that the ombudsman service cannot look at complaints about a lender’s decision – or about the commercial judgment taken by a lender on whether or not to lend. That is not the case.
Lending industry codes and regulatory guidance require lenders to assess the affordability of the lending before they make loans. We take these issues into account, together with the relevant law, when deciding the fair outcome on a complaint that is referred to us.
When assessing whether or not the lending was affordable at the time a loan was given, we consider the circumstances in which the loan came to be made – including what the lender knew of the consumer’s financial position at the time.
We also consider whether the consumer was vulnerable when the lending was made (for example, whether they were older, had mental health problems, or were in clear financial difficulty) – and whether this affected the affordability of the lending.
We also look at how the lending has been managed by the consumer – for example, whether the consumer has been able to maintain the repayments and, if so, for how long.
If we are satisfied that the lending was unaffordable when the loan was made, we consider how this has affected the consumer. This includes looking at what the loan was used for and what effect it had on the consumer’s overall financial position.
Consumers who complain to us should be prepared to give us information and evidence about this, so that we can fully understand the issues and arrive at the fair outcome.
We assess the fair outcome by taking account of all the facts and circumstances of each individual case. This means there is no "rule of thumb" to assess the outcome in cases like this. Depending on what is appropriate for the individual case, we may consider one or more of the following measures as fair redress:
The complaints we see show that there are frequent misunderstandings by consumers and financial businesses about how complaints about unaffordable lending should be approached. Here are some of the most common misunderstandings we see:
If the consumer asked to borrow the money, they can’t complain if they’re lent it.
No. For example, a consumer who believes they were pressured or wrongly advised by the lender may have a complaint, even if they applied for the borrowing themselves – particularly if they were vulnerable (perhaps older, or with mental health problems, or on a low income and already having debt problems). Whether that complaint is upheld by us will depend on what we find when we look into the matter in more detail.
It’s always wrong to lend to someone who is dependent on benefits or is disabled.
No. A consumer whose income comprises benefits, or who is disabled, is entitled to the same consideration for credit as any other consumer. Those factors do not, on their own, make lending unaffordable. However, in some cases that we see the consumer’s disability or financial position may have made them more vulnerable to the effects of unaffordable lending.
It makes no sense for a lender to lend to someone who can’t afford to repay the money – so the starting assumption should be that the lending was affordable.
No. The ombudsman service doesn’t start from the assumption that either side is "right". As an independent service, we listen to both sides and gather information for ourselves, before deciding what we think.
If the lending was unaffordable, then it should always be written off.
No. If we decide that lending was unaffordable, we take into account all the facts and circumstances, before deciding what the right outcome is for that case. This includes considering what overall effect the lending had on the consumer’s financial position (both positive and negative). .We sometimes conclude that writing off some or (exceptionally) all of the debt is the fair outcome in a case. But this will normally be where – amongst other things – we are satisfied that the consumer was vulnerable at the time the loan was made, and the lender knew that.
Consumers sometimes complain to us that their lending agreements are "unenforceable" by the lender. From what we see, these complaints are often based on misunderstandings about the law in this area – and are sometimes encouraged by wrong information from the internet or other sources.
Unlike a court, we have no standing to declare a lending agreement "unenforceable". This means we may decide not to take a complaint further, where a consumer is seeking that outcome from us.
However, consumers who ask us about "unenforceable" agreements are often also complaining that the lending was unaffordable – or that they are in genuine financial difficulty and are not being treated fairly by their lender.
Other information on our website relating to financial hardship issues include:
our frequently-asked questions:
ombudsman news features
ombudsman news case studies
contact our technical advice desk on 020 7964 1400
This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.