We looked into Paul and Joe's complaint when the lender Paul applied for a loan with, persistently contacted Joe as the guarantor when Paul couldn't make the repayments.
Paul applied for a loan with Joe as his guarantor. The loan was for £1,500 repayable in instalments of £150. The interest rate was 49.9%. Paul’s first loan payment failed. The lender contacted Joe the next day and asked him to cover the repayments Paul wasn’t making.
When the lender continued to ask Joe to make payments, he complained that the lender was wrong to accept him as the guarantor on Paul’s loan. He said he hadn’t understood that he was agreeing to be a guarantor and can’t afford to make the repayments. Paul referred the matter to us when the lender refused to stop asking him for payments.
What we said
We explained that, in cases like these, we wanted to check that the lender took reasonable steps to satisfy itself that the loan was affordable – both for Paul and for Joe. We also wanted to be sure that the lender took steps to satisfy itself that Joe properly understood the commitment he was taking on and had a fair choice about being the guarantor.
The lender says it asked Joe what his income and expenditure was and carried out a credit check. We didn’t think this was enough, given that Joe was on a relatively low income, that the repayments would take up nearly 20% of his income, and that his income came solely from disability and other benefits. In the circumstances of this case, we thought the lender should’ve gathered evidence of Joe’s income and expenditure before lending.
We also think that Joe’s credit history – which the lender says it reviewed – contained clear indicators that his financial position was fragile. Had the lender also sought evidence of Joe’s income and outgoings – as we concluded it would have been reasonable and proportionate to do – this too would have raised significant doubts about the affordability of the loan for Joe.
Our investigation showed that Joe was regularly paying over £50 per month in unauthorised overdraft fees. He was behind in his other commitments too, such as utility bills and other living expenses, and we could see that he’d incurred charges as a result. We could also see that his regular commitments amounted to more than £750. His verified income also appeared to be slightly lower than he’d declared to the lender, so that – excluding this loan – he appeared to have less than £20 per month spare.
We concluded that the lender had not adequately checked that Joe could afford the loan before accepting him as a guarantor and providing the loan to Paul – and had it done so, it would have seen that he couldn’t make the repayments. We also explained to the lender that we had concerns about whether Joe had properly understood the commitment he was taking on, though it hadn’t been necessary to continue to look into this point as we had already established that it was unfair to accept Joe as a guarantor on affordability grounds.
But we did review how Joe was treated when he told the lender he couldn’t make the repayments (once Paul’s direct debit failed). Joe supplied the lender with letters from medical practitioners which explained that he suffers from a range of mental health issues and can self-harm when under stress. The letter explained that his parents have had to step in to support his decision making in the past, including in financial matters. We listened to a call where Joe explained his financial position to the lender in some detail. We were extremely disappointed by the limited sympathy and support shown by the lender’s representative, who ended the call by informing Ed that he would now be passing the debt to a pre-court team.
To put matters right in this case, we told the lender to refund any payments made by Joe towards Paul’s loan along with 8% simple interest from the date they were paid to the date of settlement. We also told the lender to remove Joe as the guarantor so that he is free from any future obligation to repay Paul’s loan. And in recognition of the way the lender behaved towards Joe – even after it had a full understanding of his financial position and mental health condition – we awarded him £500 in compensation for the distress and inconvenience the lender’s actions caused.