The Financial Ombudsman Service (FOS) is empowered to require lenders to write off charges, interest and sometimes balances where it finds a lender has failed to act reasonably and proportionately in selling you personal loans and credit.
A common scenario from the FOS is, for example, a consumer borrows £5,000 but can’t afford to make the payments of £250 over three years, repaying £9,000 overall. The lender assessed a customer’s monthly income as £2,000, however, it failed to check if some of the money going into the customer’s bank account was from payday loans.
The true monthly income was £1,000 per month so the person could never have afforded the loan. The FOS required the lender to refund all interest and charges paid, adding interest at 8% per annum. The customer’s credit file was amended to remove adverse reporting from the default on the £5,000 loan.
Before you can complain to the FOS you need to first complain to your lender. The lender generally has eight weeks to try to resolve matters, failing which you can complain to the FOS.
The FOS will look at the following issues in deciding whether your complaint should be upheld:
- Did the lender complete reasonable and proportionate checks to satisfy itself that the borrower would be able to repay any loans in a sustainable way?
- If reasonable and proportionate checks were completed was a fair lending decision made?
- If reasonable and proportionate checks weren’t carried out, what would reasonable and proportionate checks more likely than not have shown?
- Bearing in mind the circumstances, at the time of each application, was there a point where the lender ought reasonably to have realised it was increasing the borrower’s indebtedness in a way that was unsustainable or otherwise harmful and so shouldn’t have provided further loans?
- Did the lender act unfairly or unreasonably in some other way?