Tim got in touch with us about a series of logbook loans which he said were unaffordable.
What happened
Tim contacted us about four logbook loans which were provided to him. He said the loans were unaffordable as the affordability assessment was based on his partner’s income.
Tim took out an initial logbook loan of £1,500 with a 36-month term. In the following six months, he took out two further logbook loans. All three loans ran concurrently.
What we said
We looked at whether the lender, each time it lent money to Tim, completed reasonable and proportionate checks to satisfy itself that Tim would be able to repay his loan in a sustainable way.
For the first loan, the lender carried out an income and expenditure form with Tim. The lender said the information from this form showed that Tim had a monthly disposable income of £800 which meant he could easily afford the monthly payments of £200.
However, it didn’t seem that the lender had taken steps to verify this information, for example by checking Tim’s bank statements, payslips or even carrying out a credit check. It also didn’t appear as though the lender had asked any questions about why Tim had applied for further loans not long after the initial loan, which is something we would have expected, especially given the loan was secured on Tim’s car.
We asked Tim to provide us with his bank statements. We did this to try and get an understanding of what his finances were like before the loan, and not because we thought the lender had to see these before lending. And these showed that at the point Tim took out the first loan he was unemployed, and his income consisted wholly of benefits. The bank statements also showed that Tim was struggling financially and borrowing from several different lenders in an attempt to repay existing creditors and make ends meet.
We said by the time of the second loan and which proportionate checks would more likely than not have shown, the lender should have realised that Tim’s loans had become unsustainable or otherwise harmful, not least given the proximity of the loans being taken out. Tim was already in a position where he was in a cycle of needing loans to pay off existing debt. The lender’s actions in providing further loans was making his difficulties worse – and more importantly it was unsustainable.
We didn’t think Tim had been treated fairly and told the lender to put things right for Tim. We said it was fair for Tim to pay back the capital he borrowed but all interest and charges should be refunded. We also said that the business should add interest at 8% per year simple on any overpayments, if there were any, from the date they were paid by Tim to the date of settlement.
Finally, we also told the lender that it should remove any adverse information placed on Tim’s credit file.