The Financial Ombudsman (FOS) has published in September 2018 two Decisions involving payday loans over six years old:
- Mr H has complained about fifty-four payday loans Lender C lent to him between March 2010 and September 2014.
- Mrs W’s complaint is about nine short-term loans from Lender D between November 2009 and July 2012.
In both cases FOS has decided that its rules do allow it to consider complaints about loans over six years old. This is because the customer in each case has made the complaint within three years of finding out they could complain.
These are important decisions
These two cases are published in the Technical section of the FOS website, which the FOS describes as:
intended primarily for businesses, consumer advisers and other professionals who are comfortable with technical information – and want more in-depth analysis. It sets out the ombudsman’s usual approach to the disputes we see involving the financial products and services that are complained about most.
Normally Ombudsman decisions are published giving the name of the firm but keeping the customer anonymous. But here the lenders aren’t identified as FOS considers that these decisions cover common situations and will be of general interest.
These two new decisions are relevant to thousands of cases already at the FOS and many more potential complaints.
Background to these decisions
The FOS’s rules about time limits
Cases have to be brought to the FOS within a certain time. These limits are set out in the FCA’s DISP 2.8 rule and the relevant part is:
The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service: …
(2) more than:
(a) six years after the event complained of; or (if later)
(b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint.
So for these affordability complaints where the payday loans are more than six years old, the question is whether the “three years from the date the complainant became aware” part applies.
How these time limits were applied before September 2018
Payday loan affordability complaints started to be made in late 2015. Some early complaints were upheld by the Ombudsman for loans over six years but most were rejected. But customers kept pointing out they had no idea that they could complain before.
In the summer of 2016, the FOS put all cases involving loans over six years old on hold, while they decided whether they could look at these older loans. This took until November 2016 when FOS sent letters to a number of lenders saying that it thought it could look at older loans, see my article from that date: Ombudsman will look at payday loans over 6 years old. After that several lenders started paying out on at least some older loan cases, as that article describes.
However Wonga and QuickQuid have put forward a variety of objections to the 2016 FOS decision over the last 20 months. And their cases have remained on hold. The following response from FOS to a reader with one of these cases was typical:
we’ve been speaking to [QuickQuid] about cases like yours – and they still insist we can’t look at any loans taken out more than six years before the complaint was made. We’ve explained that we think we can in a couple of cases. And they’ve come back to us with quite a bit of further information – and we’re in the process of considering what this means for cases, including your one.
The two decisions
These two decisions are together 46 pages long. It is unusual for an Ombudsman’s decision to be more than a few pages, but in these cases the length is to enable each Ombudsman to consider all the arguments on their case.
Here are some points from the two decisions that seem to me to go to the heart of the cases:
Mr H would also have been aware, or ought reasonably to have been aware, that he was paying an increasing amount of interest the more loans he took out. So I think that Mr H also ought reasonably to have been aware that he may have suffered a loss, or that he was suffering a loss as he was taking out these loans. But I wasn’t persuaded that Mr H realised that Lender C might’ve been responsible for his repayment problems – nor did I think that Mr H ought reasonably to have made that connection either. In my view, Mr H would, quite reasonably, have seen Lender C’s offer of further loan as a solution to his problem, rather than a cause of it.
Mrs W appears to be an intelligent and articulate individual who is capable of using the internet to access information. But I do not think it necessarily follows that a reasonable person in those circumstances, who became aware of affordability problems with her loan and who understood that she had suffered loss as a result, would also become aware that her difficulties could be due to failings on the part of the lender. In my view, a reasonable person in Mrs W’s circumstances would be more likely to take personal responsibility for the difficulties she faced.
I am satisfied that a reasonable person in Mrs W’s position could not reasonably be expected to have understood from her contract with LENDER D that the lender had an obligation to check that her loan was affordable before agreeing to provide it to her.
I fully appreciate that LENDER D feels strongly about this complaint, but having considered all of the evidence provided by the parties in this case … I am still not persuaded that Mrs W ought to have been aware of her cause to complain about any of these three loans any earlier than she says she did become aware (which I am satisfied was within three years of her complaint).
What happens now?
Will all payday loans over 6 years be considered?
These two decisions are not general decisions that all loans over six years will be considered. This is stated clearly in the second decision:
LENDER D says that, in taking this position, it amounts to a policy decision by the Financial Ombudsman Service that because of the prevailing circumstances in 2009 and 2010, customers who had taken short term loans which they knew were unaffordable would not have had cause to complain. To be clear, that is not what has happened here. As the deciding ombudsman, I am making this decision based on the circumstances of Mrs W in this particular case.
The FOS does not operate a system where its previous decisions set binding precedents for subsequent ones.
But by publishing these two cases in the technical section of its website, the FOS is saying that it considers the approach will be generally applicable. In effect, a lender now has to argue why someone should NOT get a refund, rather than the customer having to try to prove that they should.
Can the lenders carry on objecting?
After these two general decisions, it seems to me that lenders can either
- broadly accept them, but dispute the occasional exceptional case with FOS;
- decide to challenge a decision by the FOS in court, by asking for a judicial review; or
- reject many adjudicator decisions that FOS has jurisdiction and ask for an ombudsman review.
The second option seems unlikely to succeed given the exhaustive detail that the FOS has gone into in its decision making. The third option would be contrary to the FCA DISP 1.3.2A which says that firms have to ensure that lessons learned as a result of determinations by the Ombudsman are effectively applied in future complaint handling.
So, if this is right, then the lenders will have to accept these decisions for the most part and just challenge a few if any cases.
- On 15 October the FCA wrote a Dear CEO letter to the payday lenders which said they should take account of these FOS decisions. See Dear Payday Lender CEO – should you start a redress program?
- In October QuickQuid seems to currently be ignoring these decisions. See QuickQuid – misleading customers about loans over 6 years old.
- In February and March 2019 there are some signs of movement in the backlog of QuickQuid cases. QQ has paid out it seems on the original test cases. Several people have been told that FOS has decided their QQ case can be looked at and now it is with an adjudicator.
This is very slow, but FOS and the FCA are presumably hoping that QQ will review a large number of the on-hold cases.
- In April more adjudicator decisions started to come from FOS, but QQ has still been rejecting these.
FOS will ask people how and when they found out they could complain
The FOS currently asks people complaining about older loans when they found out they could complain. After these decisions, I expect this to continue.
If you are asked this, the FOS doesn’t want a legal argument, it wants a brief description of your case:
- describe what it was like while you were borrowing. Perhaps you were trying to cope with a reduced income and not get behind with the rent. If you thought the lenders were helping you by giving loans and that your situation was your own fault for borrowing too much, then say so. If you had a gambling problem, then mention that. If you had no idea how much you had borrowed and have been horrified to discover what it added up to, say that.
- most people will have had no idea the lender had to make affordability checks, so say if you didn’t realise they had broken any rules. And that you didn’t understand at the time that a loan your repaid could be considered to be unaffordable.
- if you have had debt advice, been in a debt management plan or an IVA, think if any debt adviser ever mentioned affordability complaints. If they didn’t, and your payday loans were just treated the same as your other debts such as credit cards, then say this. After all, if debt experts didn’t tell you about these complaints, how could you be expected to know?
- also say how and when you found out that a lender had a regulatory duty to lend responsibly and check if you could afford to repay the loans. You may have heard about payday loan refunds with the TV coverage after Wonga went into administration in 2018; you may have seen a Facebook advert from a claims company; or a friend told you about irresponsible lending complaints.
There are no wrong answers here, just say what happened to you.
For each case FOS also needs to consider if the lending was irresponsible
Once FOS has decided in a case that it can look at the older loans, the cases need to be looked at to determine if the complaint should be upheld and a refund given. The two published decisions are not decisions that Mr H and Mrs W should get a refund for their over six year loans, they are just decisions that FOS can consider if they should.
So the cases that have been on hold now need to be considered. I hope the lenders and FOS will be trying to ensure that this is done in as speedy a way as possible.
What about Wonga cases?
At the moment it is unclear how the administrators intend to reach a decision on the size of a refund a Wonga customer may get. I would hope that these two decisions mean that the administrators take loans over six years into account. But whatever the refund decided is, it is very unlikely to be paid in full as the administrators have warned there is likely to be insufficient money to pay all the unsecured creditors.
One reader who has had a Wonga case on hold for over a year because of the six year issue says she feels gutted at the possibility she may now get very little back.
What about non payday lending affordability complaints?
Although FOS has published these two decisions under the heading of Example payday lending cases, the responsible lending duty also applies much more broadly to other forms of credit.
I can see no reason why similar decisions would not be reached in other cases where there is a lot of repeat borrowing, such as doorstep lending.