Karim, a full-time carer, was struggling to repay his outstanding debt with a home credit provider – after taking out 15 individual loans. We agreed the lender should have stopped lending to Karim, rather than giving him more loans to pay off existing ones. We told it to refund interest and charges on the loans it shouldn’t have offered him.
Karim told us he was unhappy at how his lender had responded to his concerns that his borrowing wasn’t affordable. He said he’d taken out 15 home credit agreements with the same lender – over a period when he was a carer for his disabled wife, and his only income was his carer’s allowance.
Karim said that whenever he said he was having difficulty making payments, his lender offered him a new loan to help clear the balance on the existing one and to add extra funds. This had increased what he owed and pushed him further into debt – whereas he thought that the fact he’d kept having difficulties making payments should have led the lender to stop offering more loans.
In response to Karim’s complaint, the lender had told him it had completed an income and expenditure form with him for each application – and that all of these had shown he had enough funds available to comfortably make repayments. Karim disagreed with this, and referred his dispute to us.
What we did
We looked at the application for all 15 loans taken out by Karim with the lender, over the course of four years. We agreed that, on the face of it, the income and expenditure forms did have information recorded suggesting Karim could afford them. The initial four loans were relatively low in value and, in our view, the lender was entitled to rely on the information available, which suggested the repayments were affordable.
However, Karim had borrowed larger amounts from loan five onwards. We thought that, by then, the lender needed to get a better understanding of why he’d been looking to borrow more after coming back for loans so often. Simply asking him about his income and expenditure was no longer enough.
Instead, we thought the lender should have asked Karim for evidence to back up what he was saying about his income and expenditure. If it had done so, it would have seen that loans five and six – which he’d taken out while loan five was still outstanding – were both unaffordable for him.
For loans seven to 15, there was clear evidence of a pattern of unsustainable lending. By loan seven, Karim was having to pay off more than one loan with the lender at the same time. He was missing payments, and was only settling previous loans with funds from new ones. Interest from earlier loans was being rolled into later ones, which had even more interest added.
In sum, Karim’s debt was increasing unsustainably and in a way that was harmful to him. We thought the lender should have realised this – and so we decided it should not have provided loans seven to 15 either.
We told the lender to refund all interest, fees and charges Karim paid on loans five to 15 – adding 8% simple interest a year from the date Karim made the payments being refunded to the date the lender paid compensation.
We also said any adverse information about loans five and six should be removed from Karim’s credit file. For loans seven to 15, we felt the number of loans the lender had given Karim meant any information recorded about them would be adverse. So we told the lender to remove all reference to these loans from his credit file.