The Financial Ombudsman (FOS) has recently published its decision on Miss G’s complaint against Amigo.
This FOS decision criticised Amigo’s inadequate assessment of Miss G’s income and expenses. It said her poor credit record meant Amigo should have verified the figures, for example by looking at bank statements. So FOS ordered Amigo to refund all the interest and charges she paid, plus 8% statutory interest.
Many people with guarantor loans from Amigo or another lender will have poor credit records like Miss G. This new FOS ruling suggests they may be able to win complaints if the loan repayments have caused them problems.
FOS has also published an important decision on a complaint by a guarantor, see Amigo – why the Ombudsman released a guarantor from a loan.
The Ombudsman’s approach to the complaint
The Ombudsman said he wanted to consider the following points:
- Did Amigo complete reasonable and proportionate checks to satisfy itself that Miss G would be able to repay her loans in a sustainable way?
– If so, did it make a fair lending decision?
– If not, would those checks have shown that Miss G would’ve been able to do so?
- Bearing in mind the circumstances, at the time of each application, was there a point where Amigo ought reasonably to have realised it was increasing Miss G’s indebtedness in a way that was unsustainable or otherwise harmful and so shouldn’t have provided further loans?
- Did Amigo act unfairly or unreasonably in some other way?
He summed this up by saying:
In practice this meant that Amigo had to reasonably conclude that making the payments to the loan wouldn’t cause Miss G undue difficulty or adverse consequences.
He pointed out that Amigo had to ensure the loan was affordable for the borrower. The fact there was a guarantor, doesn’t mean this check on the borrower is less important.
What are “proportionate checks”?
The FCA, who regulates lenders, does say exactly how a lender has to check a loan is affordable. But the Ombudsman suggested that in general more checks were needed:
- the lower someone’s income was,
- the larger the loan was,
- the longer-term the loan was, and
- the more there had been previous borrowing from the same lender.
What checks did Amigo make?
The Ombudsman started by looking at the affordability checks Amigo made. He concluded:
I found that Amigo appeared to be relying heavily on the online questionnaires, which it asked Miss G to complete, as well as the telephone calls it had with her, in order to assess her expenditure and determine her ability to sustainably repay this loan.
But her credit record showed she had a large overdraft and payday loans when she applied for the first loans and had more borrowing before the later loans. The Ombudsman said:
I couldn’t see how Amigo could have reasonably concluded the completed questionnaire was accurate and that Miss G had a disposable income of almost £1000 a month, bearing in mind what it saw on her credit file.
He considered Amigo had not made adequate checks:
I thought that as well as asking Miss G about the details of her income and expenditure, Amigo needed to take steps to verify what it was being told. It could have done this by asking for information such as bank statements, copies of bills, or even proof of Miss G’s income.
Amigo argued that it had checked Miss G’s stated expenditure against national averages. The Ombudsman did not think that was adequate:
I also have concerns with Amigo using national averages to verify Miss G’s expenditure when it knew that she had an adverse credit history. National averages are based on the finances and expenditure of the average consumer. But Amigo knew, when it lent to Miss G, that it was providing a loan to someone who’d had an adverse credit history and therefore someone fell outside this average portfolio.
What would proper checks have shown?
The lender not making adequate checks is not enough on its own to win an affordability complaint. It is also necessary for the proper checks to have shown that the loan was unaffordable.
So the Ombudsman looked at bank statements and credit records in detail to decide if Miss G could afford the loans and he found:
she was continually in her overdraft in the months leading up to [the loan one] application. … as Miss G’s income was only half the amount she was overdrawn by, she was never likely to see a credit balance even when she received her monthly salary. I also observed that Miss G was struggling to make ends meet. And that is why she had taken out so many payday loans in the period leading up to loan one and she continued doing so after this.
I also found that Miss G’s finances had actually worsened by the time of loan two. She owed more on credit cards and by that stage had accrued catalogue debt and a number of other loans too. By the time of loan two, Miss G was taking even more short-term loans, from even more providers, as she, in vain, attempted to try and stabilise her finances.
And for loans 3-5, the Ombudsman did not look in detail, saying:
looking beyond loan two, I found that Amigo ought fairly and reasonably to have realised that Miss G’s financial position was so distressed that further loans were simply unsustainable for her.
Amigo thought that Miss G’s credit file at the time of her first loan showed that she was managing her debts well as payments to all but one of her creditors had been maintained perfectly.
The Ombudsman didn’t agree. Miss G’s overdraft was larger than her income and she used payday loans regularly. She was also only able to make minimum payments to her credit card which would take a lot longer to clear than the three years Amigo suggested.
And he said:
Miss G’s increasing debt burden and the payments she missed on her Amigo loans were clear indicators that she wasn’t managing her repayments to her existing creditors well. I’d also argue that Miss G wanting or needing to take out five loans in less than four years (for increasing amounts) was, in itself, indicative of someone who was struggling to manage their money.
Amigo said its lending decisions are not based on a borrower’s credit history as its loans are intended to help people with a poor credit record. But the Ombudsman replied:
my point here isn’t that a lender shouldn’t ever lend to a customer that already has existing credit commitments or someone who has had a payday loan in the past. What I’m saying is that further scrutiny needs to be applied and greater care taken in these circumstances to ensure that any further lending can be sustainably repaid.
And he also pointed out that although Amigo promotes these loans as way of improving a credit record, it should have seen that Miss G’s credit record was getting worse, not better.
The Ombudsman’s conclusions about Miss G’s case
The Ombudsman summarised his findings:
I find that:
- Amigo didn’t complete reasonable and proportionate checks on Miss G to satisfy itself that she was able to repay any of these loans;
- reasonable and proportionate checks would more likely than not have individually shown Miss G was unable to sustainably make the repayments for loans one and two;
- Amigo ought fairly and reasonably to have realised that the loans from loans three onwards were unsustainable or otherwise harmful for Miss G and were unfairly and excessively increasing her overall indebtedness;
- Amigo didn’t act unfairly or unreasonably towards Miss G in some other way.
So Amigo was ordered to refund all interest and charges on all the loans and top-ups, plus 8% statutory interest.
Implications for other guarantor loan cases
One Ombudsman’s decision is not a precedent for other cases. So all other Amigo decisions or guarantor loan cases don’t have to reach the same conclusion.
But many of the points the ombudsman mentioned are likely to apply to other people who have borrowed from a guarantor lender:
- The Ombudsman’s initial questions are typical of what FOS is using across a range of other high-cost credit including payday loans, doorstep lending and logbook loans. It seems likely that this general approach will now be used for other guarantor loan complaints.
- Most guarantor loans are large and long-term, two of the criteria the Ombudsman mentioned as indicating more detailed checks have to be made by the lender.
- Miss G had a number of loans and top-ups. But the Ombudsman ordered a refund from the first loan, showing that single loan cases may well be won.
- Most people applying for a guarantor loan will have a poor credit record and many will have high cost borrowing. So the Ombudsman’s concern that national averages are not an accurate check on someone’s stated expenditure in these situations may apply for many guarantor loan complaints. And the same would apply to using a Credit Reference Agency to assess people’s expenses.
How to complain about a guarantor loan
If a loan from Amigo or any other guarantor lender has caused you difficulty, think about complaining. When the loan has been repaid you can ask for a refund. If you are still paying it, the interest should be removed so you only repay what you borrowed.
See How to complain if you are the borrower for a guarantor loan for details, including a template letter for your complaint.
The comments below that article show how other people are doing with their cases. In June and July 2019, Amigo has been making good offers itself to some people who have complained. And many people are winning their complaints if they go to the Ombudsman!
If you are the guarantor for a loan you can also complain. Here if you win the complaint you may be removed as the guarantor and you may have any payments you have made refunded. There is a different template letter for guarantors to cover the reasons they may have for saying they should not have been accepted as guarantor.