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.

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 financial 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. 

Talk to your lender first so that they have the chance to put things right. They need to give you their final response within eight weeks for most types of complaint. If you’re unhappy with their response, or if they don’t respond, let us know.  

Bringing a complaint to us is straightforward and won’t cost you anything. We’ll check your complaint is something we can deal with, and if it is, we’ll investigate

Find out more about how to make a complaint. 

To help us consider a complaint fairly, we’ll ask you to provide some information. We’ll make our decision about what happened using evidence provided by you, the lender and any relevant third parties.

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

If we think your lender did something wrong or treated you unfairly we’ll ask them to put things right. Our general approach is that you should be put back in the position you would have been in if the problem hadn’t happened. We may also ask your lender to pay you compensation if we think you experienced distress or inconvenience. 

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. The following examples give an idea of our approach: 

Where a loan was repaid

• we may ask the lender to 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

• we may ask the lender to 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 it isn’t unfair for you to pay this back. But there’ll be some rare cases where we don’t think this is fair. This’ll very much depend on what exactly has happened.

If you’re worried about money and finding it difficult to know where to start, the government-backed MoneyHelper  service can help you find a way forward. Whether it’s living on a squeezed income, working out how to prioritise your bills and payments, or access to free, expert debt advice, they can help you take the first step towards getting on top of things.

StepChange Debt Charity offers free, flexible debt advice that is based on a comprehensive assessment of your situation and provide practical help and support for however long it’s needed.

If you’re a financial business looking for information to help you resolve complaints, detailed information about handling complaints about unaffordable lending  can be found in the business section of our website.