What is unaffordable lending?
People apply for credit for a variety of reasons. Sometimes, for example, to help them finance a purchase for a large amount – such as a car or a new kitchen. And most of the time a consumer will manage to pay back the credit without any major issues. But sometimes we see cases where a lender has provided a consumer with more credit than they could ever afford to repay, without them having difficulty doing so.
The following information is about complaints we see about unaffordable or irresponsible lending.
Types of complaints we see
Consumers sometimes complain to us that their credit was unaffordable and so they believe the lender acted irresponsibly in providing the funds. This is a problem because a consumer might have difficulty paying back what’s owed or they might even be unable repay at all. We see complaints about unaffordable lending across a range of credit products, from car finance to payday lending.
Consumers sometimes complain that they’re experiencing difficulty because their circumstances have changed – for example, they might have lost their job or only able to work reduced hours - and their lender isn't treating them fairly.
How to complain
The first thing you should do is talk to your lender and explain what's happened and why you're complaining. They need to have the chance to put things right. We only look at complaints that a business has had a chance to look at first, unless both sides agree.
The business should look at the complaint within certain time limits and give you their final response, and within eight weeks for most types of complaint. If you’re not happy with their response, you can bring your complaint to us.
Find out more about how to make a complaint.
What we look at
If you’re complaining that your lender provided you with unaffordable credit, or lent to you irresponsibly, we'll usually look at whether your lender completed reasonable and proportionate checks before you took out the loan, or whether it has treated you unreasonably or unfairly in some way. When agreeing to your loan, lenders need to do enough to be able to make a reasonable decision on whether you'd be able to make the repayments without too much trouble. There isn’t a specific set of checks that lenders have to carry out.
But when looking at whether any checks were reasonable and proportionate we’ll think about things like:
- how much you borrowed
- how much you had to pay back
- how much your payments were and how long you had to make them for
- what your lender knew about your financial position
Putting things right
If we think your lender did something wrong or treated you unfairly we’ll ask them to put things right. The exact details of how we’ll ask your lender to put things right will depend on the nature of your complaint, and how you lost out. But typically we’ll tell your lender to:
Where a loan was repaid
- refund any interest and charges you paid (if you did) adding 8% simple interest; and
- remove any adverse information recorded on your credit file.
Where there’s still an outstanding balance
- remove all the interest and charges added on and make sure the balance is only made up of what was lent to you;
- deduct any payments already made;
- if this means you paid too much, then the extra should be refunded to you adding 8% simple interest.
Sometimes there’ll still be an outstanding balance even after all adjustments have been made. And we’ll usually say that it isn’t unfair for you to pay this back. But there’ll be some rare instances where we don’t think this is fair. This’ll very much depend on what exactly has happened.
We may tell you lender to pay you extra compensation if we think you were caused distress and inconvenience – especially if we find that your lender acted unfairly or unreasonably towards you in some other way.
A borrower tells us she was provided with a loan she couldn't afford
Detailed information for businesses
Businesses can find out more in our detailed information about handling complaints about unaffordable lending.