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ombudsman news

issue 141

August 2017

problems with credit

complaints about consumer credit, Q1 2017/2018

In 2016/2017 we saw an 89% rise in complaints about consumer credit – which includes products and services such as payday loans, hire purchase, and catalogue shopping. Excluding PPI, this area accounted for 17.5% of the complaints people brought to us – compared with 9% in 2015/2016. In addition, having fallen slightly the year before, complaints about credit cards rose by 17%.

As we explained in our annual review, we’ve continued to hear from people who’ve fallen into debt – who may argue they shouldn’t have been lent to at all. Another significant proportion of people are unhappy with the quality of the goods or services they’ve got on credit, frustrated by administrative issues, or caught out by charges they hadn’t expected. These case studies illustrate the breadth of the problems we see – and how we approach putting them right.

In addition to our regular quarterly snapshot, we've looked at where in the UK the approximately 7,500 complaints about consumer credit came from. Unsurprisingly, areas with larger populations generally account for more complaints in terms of numbers. However, if complaints from each postcode area are shared among the people there, some areas with relatively few people have a relatively high density of complaints.

index of case studies

  • 141/1 – Mr S complains that bank hasn’t helped with credit card debt
  • 141/2 – Ms B complains that finance provider won’t repair phone bought on hire purchase
  • 141/3 – Mrs H complains that trouble with kitchen loan has left mark on her credit file
  • 141/4 – Mr K complains that finance provider won’t repair hire-purchase TV
  • 141/5 – Mr W complains that catalogue shopping company won’t refund faulty tablet
  • 141/6 – Miss N disputes excess mileage charge on car finance
  • 141/7 – Mr A complains credit card company didn’t apply default – so debt-management plan is still on credit file
  • 141/8 – Mr G complains he shouldn’t have been given flexi-credit loan
  • 141/9 – Mr L complains that payday lender shouldn’t have agreed to give multiple loans

Mr S complains that bank hasn’t helped with credit card debt

Mr S told us his bank had treated him unfairly after he’d fallen into financial difficulties. He’d been struggling to keep up with repayments on his credit card – and a debt charity had advised him to ask the bank for help.

Mr S said he’d provided the bank with details about his income and expenditure. He said he’d told them he could only afford to pay £1 a month towards his credit card and had asked them to reduce or freeze the interest while he was struggling. But he hadn’t managed to reach an agreement with the bank – and they’d issued a default notice on his account.

After Mr S complained, the bank had refunded some interest and charges. But they’d then passed his account to a debt collection agency to recover the money he owed. Mr S thought this was unfair and asked us to look into it.

putting things right

We contacted the bank to ask for their side of the story. They sent us notes from their system showing they’d been trying to contact Mr S about his debt for some months before he’d sent them the income and expenditure form. And after they’d received it, they’d written back to say he’d missed out information they needed – but they hadn’t received a response.

Mr S said he hadn’t received the bank’s request for information. In light of this, the bank had offered to refund the interest and charges on his account from the point when he’d first contacted them. They’d also said they’d send him another income and expenditure form.

We told Mr S that we thought the bank’s offer was fair. He’d be in the position he would have been in if the interest had been frozen when he first got in touch with them. So he wouldn’t have to pay any more interest than he’d originally owed.

Mr S felt the bank had caused him a great deal of frustration, anxiety and stress at an already difficult time. We explained that, given that the bank had been trying to sort things out for some time, we didn’t necessarily think it was unfair that they’d passed his account to a debt collection agency. But we encouraged him to contact the agency to set up a suitable repayment plan, with the help of the debt charity who’d helped him complain.

Ms B complains that finance provider won’t repair phone bought on hire purchase

Ms B contacted us about the mobile phone she’d got on a hire purchase agreement. She said it had developed a fault not long after getting it, and she’d contacted the finance provider to get it repaired. But they’d refused to repair it, saying it wasn’t the same phone she’d been sold.

After Ms B complained, the finance provider had offered to end the finance agreement – but still wouldn’t repair the phone. Ms B insisted it was exactly the same phone and asked for our help to resolve the situation.

putting things right

We asked the finance provider for their version of events. They said the model didn’t match their records – and insisted that the phone she was trying to get repaired wasn’t the one they’d sold her.

We asked the finance provider to give us some evidence of the phone they’d supplied to Ms B – including the serial number. They said they hadn’t recorded the serial number of the original phone – so they weren’t able to verify the details.

In our view, it wasn’t fair for the finance provider to refuse to repair the phone when they weren’t able to provide evidence that it wasn’t the one they’d sold Ms B. We told them to repair the phone and to refund the payments Ms B had made under her hire purchase agreement while they’d delayed doing so.

Mrs H complains that trouble with kitchen loan has left mark on her credit file

Mrs H contacted us about a default marker on her credit file relating to a point of sale loan she’d used to buy a kitchen. She explained she’d decided to cancel the kitchen order with the retailer, and had assumed the finance had also been cancelled. But she’d later discovered the finance agreement was still in place – and the business had put a default entry on her credit file for non-payment.

Mrs H had contacted the retailer – who’d apologised for the error and cancelled the agreement with the finance company. The finance company had agreed to remove the default marker, but it had later reappeared on her credit file. After Mrs H complained, the finance company offered her £150 to reflect the upset they’d caused. But Mrs H didn’t think they’d gone far enough and asked for our help.

putting things right

Mrs H told us she’d been unable to get a buy-to-let mortgage due to the default marker, losing out on considerable rental income. We phoned the finance company and asked if they’d now removed the default from her file. They explained they’d put in a request for it to be removed from her credit file, and they were waiting for confirmation of the change from the credit reference agencies.

We also considered whether the offer made by the finance provider was fair. To help us, we asked Mrs H for more information to show why she believed she was out of pocket. Mrs H sent us paperwork and correspondence relating to her mortgage application. Having carefully reviewed this, we concluded there wasn’t any evidence that she’d lost out directly as a result of the default marker that had been applied to her account.

We explained to Mrs H that – although the situation was clearly frustrating – we thought the finance provider had done enough to put things right. After hearing our opinion, she agreed to accept their offer of compensation.

Mr K complains that finance provider won’t repair hire-purchase TV

Mr K called us after a TV that he’d got on hire-purchase had developed a fault. He said he’d asked the finance company if they would repair or replace it under the terms of their service plan, but they’d said they wouldn’t.

Mr K said he’d then tried to get the TV repaired by a local firm – but had been told it was unrepairable. Not sure what to do next, he asked us to look into the problem.

putting things right

We asked Mr K for more detail about the TV and how he’d been paying for it. He explained he’d paid off the hire-purchase agreement early, and a couple of months later the TV had stopped working properly. This was when he’d first contacted the finance company to ask if they could help.

We asked the finance company to explain their side of the story. They said that, as Mr K had fully paid off the hire-purchase agreement, he was the full owner of the TV – which meant the service plan was no longer valid and he was now responsible for any repairs. They said that staff had explained this to Mr K when he’d gone into their store to ask about repairs.

We asked the finance provider for more details about their service plans. They told us that the service plan covered delivery and installation of goods, and that anything beyond that would be an optional extra that a customer would have to choose to take out.

When we looked at the service plan documents we could see that Mr K hadn’t selected any extra cover. So he hadn’t ever had a service plan in place that would have covered the kind of repairs he needed. And he wouldn’t have had any protection under the hire purchase agreement to fall back on either, as he’d already paid off the agreement in full.

When we explained the position to Mr K, he was disappointed to have to give up on the TV – but accepted the finance provider wasn’t at fault.

Mr W complains that catalogue shopping company won’t refund faulty tablet

Mr W got in touch with us about a number of issues with his catalogue shopping account. He said a tablet he’d bought through his account had developed a fault after only two days. But the business wouldn’t agree to collect it from him and refund the cost. He also wanted a refund of the insurance he’d bought to cover it.

Mr W was also upset that the business had closed his account and passed it to a debt collection agency. He said he’d then found they’d put a default notice on his credit file because he’d missed payments – and hadn’t sent him statements when he’d asked for copies of ones he hadn’t received.

putting things right

Mr W told us he’d emailed the business about the faulty tablet two days after receiving it. But in their response to his complaint, the business said that Mr W hadn’t contacted them about it until over a year after he’d received it – which meant it was outside the manufacturer’s 12-month warranty. So they’d recommended he contact his insurance provider.

However, when we asked to see the business’s records, we could see he’d sent an email two days after receiving the tablet, as he’d said. There was another email soon after in which he’d complained that the business wasn’t responding to him. It seemed there’d been some confusion as Mr W had been corresponding about several items around the time. But as for the tablet, there was clear evidence for Mr W’s version of events.

We also needed to resolve the dispute about the statements. The business’s records showed that Mr W had said he was going to cancel his direct debit and send all his statements straight back – because of the unsatisfactory service he’d received.

The business’ records confirmed that post they sent to Mr W was often returned. So they’d flagged Mr W’s account as “gone away” and stopped sending things to him.

In our view it was reasonable for the business to stop sending post in these circumstances – as they couldn’t be sure the correct person was receiving it. And Mr W could have accessed his account and seen how much he owed online.

We explained to Mr W that he’d breached his original credit agreement by stopping his direct debit. So we didn’t think it was unfair for the business to have closed his account and passed on his debt.

However, we didn’t think it was fair that the business had applied a default notice to Mr W’s credit file – because they hadn’t even tried to give him notice that they were going to do so. This meant he hadn’t had the 28 days he should have had – which would have allowed him time to make a payment or agree a repayment plan.

To draw a line under what had happened, we told the business to collect the faulty tablet, and to refund the cost of the tablet and the insurance policy. We also told them to remove the default notice from Mr W’s credit file.

Miss N disputes excess mileage charge on car finance

Miss N phoned us after getting into a dispute with a car dealership. When her car finance agreement had ended after three years, she’d given back the car. But the dealer had said she owed £600 because she’d driven more than 7,000 miles in that time.

Adamant she hadn’t been told about this limit, Miss N had complained – and had been offered a small discount as a “gesture of goodwill”. But Miss N didn’t think she should have to pay anything at all – and asked for our help to sort things out.

putting things right

We needed to establish what had happened when Miss N took out her car finance. In particular, we needed to find out whether the mileage limit and charges had been made clear to her.

We asked the car finance company for paperwork relating to her agreement. They sent us a document headed up “Personal Contract Plan Quotation”, which explained that the finance company could claim an excess mileage charge if someone drove more than 7,000 miles a year.

We asked Miss N what she remembered from when she signed up for the car. She said she’d told the dealer she’d be using the car to get to work, and that this would involve driving around 6,500 miles over the course of the year. She said she remembered being told the mileage limit was 10,000, which she’d judged to be enough to cover any extra driving she did at the weekends. She pointed out she’d been careful to do less than 30,000 miles over the three years she’d had the car.

Miss N said she hadn’t seen the document setting out the 7,000 mile limit – and we noted the document wasn’t signed. When we told the finance company what Miss N remembered, they didn’t challenge her account.

On balance, we decided she hadn’t been told about the mileage limit of 7,000 – and that she wouldn’t have agreed to it if she’d known about it. So we told the finance company they shouldn’t apply the excess mileage charge.

Mr A complains credit card company didn’t apply default – so debt-management plan is still on credit file

Mr A wrote to us about information he didn’t agree with on his credit file. He explained he’d been in financial difficulties seven years previously – and the defaults his creditors had applied had elapsed after six years. The exception was his credit card account, which hadn’t been marked as in default – meaning his debt-management plan was still on his records.

Mr A said he’d complained to the credit card company – but they’d stood by their decision not to mark his account in default. They told him he needed to clear his debt with the third party it had now been sold to. Mr A felt he’d been treated even worse than someone who hadn’t even tried to pay back what they owed – and wanted our help.

putting things right

We asked the credit card company for more information about the history of Mr A’s account. They explained they’d frozen the interest for a year after he’d said he was in financial difficulties. He’d then been charged a reduced interest rate during the years he was on his debt-management plan. And the interest had been frozen again at the point they’d sold the debt to the third party.

The credit card company said they hadn’t been obliged to do these things, but they’d wanted to help Mr A. They’d thought that keeping his account open, rather than putting a default marker on it, had been better for his credit file.

Mr A had stuck to his debt-management plan for the most part – so a default hadn’t been triggered. However, while he’d been on the plan, his repayments had barely covered the interest being added. By our calculations, it would have taken him over 100 years to repay the debt. And even now that his debt had been sold on and the interest frozen, it would take him around 20 years to pay it back at the current rate of interest.

When we pointed this out to the credit card company, they offered to refund the interest Mr A paid in the months he hadn’t paid £1 towards his debt. But in our view, this wasn’t enough.

We explained to Mr A that the credit card company weren’t obliged to put his account into default. But we thought he’d been charged a disproportionate amount of interest. And, overall, the credit card company hadn’t treated him sympathetically and positively, as they’d been required to.

In light of everything we’d seen, we told the credit card company to refund all the interest Mr A had paid while he was on his debt-management plan.

Mr G complains he shouldn’t have been given flexi-credit loan

Mr G contacted us about a flexible credit loan – a credit facility that works like a standalone overdraft with a credit limit. He explained he’d had the loan since 2013, and his debt had just been getting worse and worse. He said had other loans with payday lenders, and was borrowing to cover his monthly expenses. And he thought the business, a payday lender, should have noticed there were problems – both when they carried out their affordability checks, and during the time he’d had the loan.

putting things right

Given what Mr G had said, we wanted to know more about the checks the lender had carried out when deciding whether to lend to him. But the lender wouldn’t share these checks with us – and said they didn’t think Mr G’s other borrowing made him ineligible for the flexible credit loan. They only told us that they’d asked him for details of his monthly income and carried out a credit check.

Because the lender wouldn’t cooperate, we looked for evidence that would have been available about Mr G’s financial circumstances at the time – for example, his bank statements. And we decided, based on this information, that the lender should have been aware of his other borrowing.

We accepted this other borrowing didn’t automatically make Mr G ineligible for the credit. But it did mean the lender should have then carried out further and more rigorous checks – to make sure Mr G would be able to meet his repayment commitments.

Looking at Mr G’s circumstances more closely, we didn’t think further checks would have uncovered anything to suggest Mr G wouldn’t have been able to make repayments. However, the guidance around this type of borrowing says a business should monitor a borrower’s repayment record and offer help if they seem to be in financial difficulty. And we didn’t think the lender had done this in Mr G’s case.

For example, the loan paperwork explained that it was designed to be repaid over a maximum of 10 months – and warned it wasn’t suitable for long term or regular borrowing. But Mr G’s loan ran for 17 months – and he frequently withdrew funds taking him up to his credit limit, just as his monthly repayment was due. In the first month, he’d already taken out the maximum amount.

We could see that Mr G had been relying on further borrowing to make his repayments – and the more he borrowed, the further he got from the original repayment schedule. In fact, the lender had increased his credit limit, enabling him to take on more borrowing. This meant that after 10 months, Mr G owed the lender more than he’d originally borrowed – at a time when the loan should have been fully repaid.

We thought it was obvious Mr G was in difficulty from the way he’d been managing his account – but the lender had failed to act as they should.

Taking all this into account, we told the lender to refund all the interest and charges applied to Mr G’s loan when he wasn’t using the account as it was supposed to be used – that is, when he was allowed to draw down further funds even though it looked like he might have been in financial difficulty. We told them to add 8% simple interest to this amount – and to remove any adverse information recorded on his credit file.

Mr L complains that payday lender shouldn’t have agreed to give multiple loans

Mr L told us he’d got into debt with several payday and instalment loans. He explained that the lender had already offered compensation for two loans – following a review of lending decisions, after FCA regulation began.

Mr L had complained that he shouldn’t have been given his last two loans either – but the lender had said they hadn’t done anything wrong. Mr L disagreed and asked us to look into things further.

putting things right

We contacted the payday lender to find out more about the checks they’d carried out before lending to Mr L. They said all of Mr L’s applications had been automatically approved by their systems – and nothing had been flagged to suggest further checks were required.

It appeared the lender had asked Mr L about his income and expenditure before approving these last two loans. Based on what he’d told them, we didn’t necessarily think the loans would have been unaffordable. But we noticed Mr L’s answers were different to those he’d given when he’d taken out previous loans.

The lender also argued it had been several months since Mr L last applied for a loan with them. But there was virtually no break between his repaying the previous loan and taking out the further loans. So Mr L had been consistently in debt with the lender during that time.

In our view, based on Mr L’s history of borrowing with the payday lender, it was clear he was dependent on borrowing. And just because the lender’s computer system had approved the loans, it didn’t mean they should have automatically lent him more money.

From what we’d seen, we decided the lender hadn’t carried out proportionate checks before making their lending decision. If they had, they’d have realised the loans were unaffordable – and wouldn’t have lent to Mr L. We thought they’d needed to do more to check what he’d said about his expenditure – and to get an up-to-date understanding about his financial commitments.

We saw from Mr L’s bank and loan records that he’d been regularly borrowing from other short-term lenders around the time he’d taken out the loans he was complaining about. He was also paying significant fees for having an unarranged overdraft and having direct debits declined.

If the lender had carried out proportionate checks, they’d have realised that Mr L wasn’t likely to be able to repay more credit without borrowing more. In other words, the loans were unaffordable – and, as a responsible lender, the lender shouldn’t have given them to Mr L.

Mr L wanted the lender to pay back all the money he shouldn’t have been given. We explained that, since he’d had the money and used it, we didn’t think this would be a fair outcome. However, we told the lender to refund all the interest, fees, and charges Mr L paid for the loans, adding 8% simple interest. And because it wouldn’t be fair for Mr L’s credit file to be negatively affected by the lender’s poor decisions, we told them to remove the adverse entries relating to these loans.

Image: ombudsman news 141

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.