Secured loan distress
Secured loan complaints increased by 2% year-on-year from 1,130 to 1,147. Here FOS outlines an instance where a lack of thorough affordability checks left a person with serious mental illness in debt distress.
Ms T told us that her brother, Mr T, had been taken into care because of serious mental illness. She’d discovered he’d fallen into serious arrears on a £40,000 secured loan.
Ms T explained that she’d seen her brother’s application form and believed there were serious mistakes. She’d complained to his bank that they shouldn’t have lent him the money. But the bank had told her they’d had no reason to doubt the information Mr T had provided – and had fast-tracked his application because of the low “loan-to-value” ratio.
We found the bank had missed a number of opportunities to make sure they were doing the right thing by Mr T.
He’d told them he had a “guaranteed” income of £12,000 a year from a pension, but the bank hadn’t asked for evidence. Mr T had also said he didn’t pay council tax, which the bank hadn’t questioned. The driving licence he’d shown had expired, and had only been valid for 12 months in the first place.
In our view, all these things should have alerted the bank to the fact they needed more information. And if they’d asked for even some of it, we thought they’d have realised the loan might be unaffordable for Mr T.
The bank agreed that fast-tracking his application hadn’t been the right option and said they’d write off the outstanding debt.
Age assessments and mortgages
Complaints about mortgages fell by 8% year on year to 10,428, FOS reported. The ombudsman said it has seen improvements in the way lenders treated older borrowers, but more can still be done.
Simon Pugh, ombudsman manager, explained: “Age can be an important factor in designing and pricing financial products and services – and age discrimination isn’t necessarily unlawful in this sector. But if a business is considering a customer’s age when assessing risk, they need to make sure they’re only using information that’s relevant to assessing the risk.
“This year we’ve continued to see complaints where – apparently because of their age – people have experienced difficulties with their mortgages. But we’ve seen a growing willingness on the part of lenders to work flexibly around age limits. I hope that’s partly a result of the ongoing conversations we’ve had with lenders, highlighting situations where strict lending policies might lead to unfair outcomes for certain customers.
“There’s still work to do though. And I’d say, on the whole, it’s communication where lenders are sometimes falling down. This year we’ve continued to hear from people who simply don’t understand why a lender has refused their mortgage application.
“Of course, lenders might not want to share information that’s commercially sensitive. But our experience suggests that the more open the conversations that happen early on, the less chance there is of complaints being escalated.”
Payday loan frustration
Customers frustrated at the way they have been treated by payday loan companies have turned to the ombudsman for help in their thousands. The annual review for 2016/2017 showed 10,529 new complaints had reached the ombudsman about payday loans, compared to 3,216 the year before.
Richard Thompson, principal ombudsman and quality director, gave an example of behaviour which it ruled did not put the customer at the heart of its decision to lend money.
He said: “Mrs L phoned us, saying she didn’t know how to begin to sort things out. She’d initially borrowed £300 from a payday lender, but was now in thousands of pounds of debt. We could see from Mrs L’s bank statements that during the term of her £300 loan, she’d taken out four more loans with other payday lenders, and was still significantly overdrawn.
“On the same day as paying off the £300 loan, she’d borrowed a further £500 from the original lender. The payday lender told us they’d carried out an affordability assessment. But there was no record that they’d taken details of Mrs L’s expenditure at the time.
“We thought the lender should have done more, especially given Mrs L was applying to borrow around a third of her monthly income. If they’d carried out more thorough checks, it would have been clear that she was heavily dependent on payday lending to get by.
“We decided the payday lender shouldn’t have given Mrs L the second loan. So, we told them to refund all the interest and charges they’d applied to it, adding interest – and to work out a fair and affordable way for Mrs L to pay back what she owed.
“We also told the lender to make sure there was no adverse information on Mrs L’s credit file relating to the loan they shouldn’t have given her. We helped Mrs L get in touch with a free debt charity to help her take control of her wider debt.”
Read FOS’ full report.