We looked into Aaron's complaint about his lender after they had given him five loans, and made repaying them very difficult for him.
Aaron told us that he was unhappy that his lender had given him five loans. He told us that he thought the loans were unaffordable and that his lender would have seen this if it had done reasonable checks before providing them. He said he managed to make the payments for all the loans – although some of them were late – but he was only able to do so with difficulty.
We asked the lender for their side of the story. They said that their agent completed an income and expenditure analysis with Aaron before agreeing to provide the funds. And Aaron said he earned £400 a week and had weekly expenses of £270. So he had a weekly disposable income of £130. It accepted that loans four and five were given while loan three was still outstanding. But even then the most that Aaron had to pay was £100 and the checks showed he had the funds to cover this. The lender also said they carried out a credit check on Aaron when he applied for the loans, but didn’t provide much about this.
In the lender’s view, all of this meant that they did enough to establish that Aaron’s loans were affordable for him and the loans being repaid supported this.
What we said
Aaron’s first two loans were for relatively small amounts, £200 and £250, and the weekly payments were relatively small – less than £6.50 for loan one and £7.78 for loan two. Bearing in mind the circumstances, we thought that what the lender had done before providing loans one and two was reasonable and proportionate and so we didn’t think the complaint about those loans should be upheld.
But loan three was for £750 and it was taken on the same day that Aaron had made his last payment for loan two. So the weekly payments were higher – around £20 a week. By this stage Aaron had also been in debt to the lender for more than a year. So we thought that they needed to get to the crux of why Aaron needed to come back for a further loan given the amount of his declared disposable income – especially as there were some late payments on loan two.
We were also concerned by what we had seen on the lender’s credit checks. The credit check showed that Aaron had recently entered into two repayment arrangements on payday loans. We thought that this was also indicative of possible financial difficulty and as a result we thought that reasonable and proportionate checks for loan three would have involved getting a thorough understanding of Aaron’s financial position. As the lender hadn’t gone as far as this, we didn’t think the checks for loan three or those for loans four and five, which were taken pretty soon after and while loan three was being repaid, were reasonable and proportionate.
We went on to look at what proportionate checks would more likely than not have shown. And we saw that Aaron was struggling financially. He was borrowing from a number of lenders just so he could make loan payments to others. We also saw that he’d been significantly overdrawn for an extended period of time. His account balance never went into credit even when his wages went in each month. So we thought that there was no reasonable prospect of Aaron being able to make the payments for loan three and meet his living costs without borrowing further. The position was worsening and by the time he applied for loans four and five, Aaron owed even more money to others. So we told the lender that we thought they unfairly provided Aaron with loans three to five as proportionate checks would more likely than not have shown these loans shouldn’t have been given to him.
The lender was told to refund all the interest and charges Aaron paid on loans three to five, adding 8% simple interest. We also told them that they needed to remove any adverse information they recorded on Aaron’s credit file.
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