Some lenders responding to affordability complaints by saying your application wasn’t accurate about your income or expenses when you took out the loans.
They are doing this to try to put you off taking your case to the Financial Ombudsman. That may save them a lot of money!
Let’s see why applications may have been inaccurate and whether this is a problem for your complaint.
Most of the examples here are for payday loans, but this also applies to other bad credit loans, car finance, guarantor loans etc.
Many people don’t know their expenses
I sometimes ask trainee debt advisers to complete an Income & Expenditure sheet. After trying, they realise it isn’t as easy as it sounds! It’s common for people to:
- forget annual expenses and variable costs (car costs, Christmas, school uniforms, school trips etc);
- not be sure what to do if they pay some expenses and their partner pay others;
- have little idea what they spend on food and other supermarket items;
- not know what to do if they are on zero-hours contracts or have variable self-employed income.
Not asked about most expenses
Some lenders ask very little about your expenses.
This can make it harder for you to give “accurate numbers” as you may not think of things such as clothes or car servicing costs which don’t happen every month if you are asked to give a figure for your regular financial commitments.
Almost always people miss things off or underestimate expenses.
People often don’t put down large amounts for cigarettes, alcohol, drugs or gambling. Partly because they think they would be refused a loan but often because they hope that next month things won’t be so bad.
You may have put in a higher income hoping to get more hours at work.
Not accurate about other debts
Often people are asked on an application to list their other debt payments or credit commitments.
You may have missed off debt repayments because you knew you wouldn’t be able to afford them so you wouldn’t pay them – is that an expense or not?
But lots of people don’t think this includes a payday loan that will be repaid the next month, because it’s not a regular payment like a bank loan or credit card.
As an example, see this FOS decision: where the Ombudsman agrees that someone may not have realised they should have listed payday loans:
I appreciate that [the lender] asked Ms B about her monthly credit repayments, but I agree with the adjudicator that the question wasn’t sufficiently clear for her to have realised that she also needed to provide information about her short term lending as well as her long term credit repayments.
You may not have listed overdraft charges as you don’t actually “make a payment” to them, they just come out of your bank account automatically.
Missing figures or underestimating isn’t always deliberate
If you aren’t good with money or you had mental health problems, you may not have been able to clearly think about your finances.
Or you may simply have filled out the application without much thought. Some lenders pride themselves on this – for years the Amigo website proudly said you could complete its application process in 5 minutes!
Lenders never suggest you should take your time and consider the figures carefully, look at your bank statements and come back and finish the application in a few days.
One common error is to think about what you spend in food in a week and put that down for the whole month. Of course any lender that thought for a moment about the application would realise that £100 a month for food for an adult and a teenager was an error, but too often they don’t make any checks, or try to verify the numbers.
If you were applying for a very short term loan it may be fine to have left off some standard expenses. In February if you applied for a 3 month loan, what you will spend next Christmas isn’t relevant. But for loans over 6 months, the lenders should expect a wide variety of expenses and suspect they have not been given a complete list if many are missing.
You may have given pretty accurate figures when you first borrowed. But if you took another loan, you may not have changed them even if your situation had got worse:
- it can be very easy if you are stressed or in a hurry to just tick boxes without paying much attention. Especially if the lender said you could apply for a top-up;
- some lenders pre-ticked boxes or filled in your previous numbers if you were applying for a new loan, so it was even easier to accept them without thinking if they had changed;
- for applications in a shop, some existing customers report being given a completed form to sign to get the money – they weren’t asked if anything had changed.
“I never said that!”
Sometimes people are astonished at the very high income the lender has recorded them as saying. This may be because your £1,500 monthly income has been recorded as weekly. It could be an error by the lender or by you. But if it was an error by you, the lender should have wondered why someone earning £6,000 in a month needed to take out a payday loan at all!
Other situations where the numbers didn’t come from you include:
- some people have reported never being asked for expense details when they are told on a credit report such as Clear Score that they are pre-approved for a loan.
- sometimes people applied for a loan online but were then phoned up by the lender who talked through details and may have changed some figures. But the customer was never sent the new figures.
- for doorstep loans, some agents may have completed the application for you to sign.
If you disagree that you ever gave the numbers the lender says you did, explain this to the Ombudsman.
Lenders know people’s applications may not be complete or accurate
Bad credit lenders know people applying for a loan may be desperate and so may exaggerate their income or not mention their real expenses. And so does the regulator who says ( CONC 5.2A.36) say that a firm shouldn’t give a loan if they know or should suspect that the customer hasn’t been truthful when applying for the loan.
FOS has summarised the approach it takes to affordability cases, saying:
“we’d typically reach the view that a reasonable and proportionate check would usually need to be more thorough:
- the lower a customer’s income (reflecting that it could be more difficult to make any loan repayments to a given loan amount from a lower level of income);
- the higher the amount due to be repaid (reflecting that it could be more difficult to meet a higher amount from a particular level of income);
- the longer the term of the loan (reflecting the fact that the total cost of the credit is likely to be greater and the customer is required to make payments for an extended period); and
- the greater the number and frequency of loans, and the longer the period of time during which a customer has been given loans (reflecting the risk that repeated refinancing may signal that the borrowing had become, or was becoming, unsustainable).”
So if your first loan was large that should have been looked at closely.
And if you were continuing to borrow despite your income and expenses suggesting you shouldn’t have big financial problems, the lender should have realised that – for whatever reason – there was something wrong with the details they had.
You asked for the first loan to consolidate debt. Then you later want a top-up for the same reason, and a check on your credit record shows you didn’t use the first loan to clear debt.
A responsible lender would either have stopped lending at that point or asked for other evidence such as your bank statements.
When should the lender have realised the figures may be wrong?
This depends on what else the lender knew and how large/serious the loan was.
If your lender credit checked you, they should have taken that into account. So if your credit account showed defaults, arrangements to pay or other problems this doesn’t seem compatible with an I&E that showed you had a lot of spare income and you can argue the lender should have suspected your I&E was not correct.
For later loans, the lender should have thought about your previous loan history when deciding whether to lend again. Your I&E may show a lot of spare income but if you are rolling loans or borrowing every month, that suggests you are dependent on these loans. In this case an I&E that shows a lot of spare income must be wrong.
If your I&E varied a lot, this should also have been a warning flag to the lender that perhaps there was something wrong with the figures. Here is an Ombudsman’s comment in this sort of situation:
However, when Mrs D applied for her fourth loan, I don’t think [the lender] should have relied on the expenditure figures provided by Mrs D… Although it appears affordable, Mrs D was saying her only expenditure was on food (£50) and utilities (£100). This compares with her first loan application when she also had expenditure on rent (£200) and credit (£100). Indeed £50 on food per month for herself and two dependants also seems unlikely.
But for large loans, FOS says detailed checks should have been made on the first loan.
FOS also says that guarantor lenders should make more checks because the implications of providing a guarantee are serious. As a result, affordabilty complaints about guarantor loans are often won even if there is only one loan.
The letter from the lender feels threatening
Sometimes lenders go further than just saying your loan looked affordable on the figures you gave. They suggest that if you take it further they will be investigating your application, or asking you to explain the figures or report you for fraud.
This seems to be a bluff to get you to drop the complaint. Some lenders say this to everyone who complains, it’s an automated response.
I have seen this happen to a lot of people and so far no-one has had further problems if they have taken the complaint to the Ombudsman.
In a recent court case the judge said:
I was satisfied that most of [the borrowers] were doing their best to give honest answers most of the time, even if they turned out not to be accurate, sometimes by significant amounts… the process encourages speed, defaults to using brackets for the financial data it collects, and requires no supporting documents. The way the different types of expenditure were described in some of the fields also gave rise to an understandable confusion in some cases. What expenditure was being asked for was not always clear, even to those in court reading the rubric, with the benefit of time, and without the pressure of needing to get a loan.
The only example the judge thought was clearly dishonest was one where a borrower had invented a job and an employer.
Many people are worried their application wasn’t accurate. They may not remember it in detail, they may not have been asked about some expenses, they may have completed the application in a hurry.
But lenders can’t assume your application is correct, unless the loan is either small or is clearly affordable. A payday lender doesn’t usually have to make detailed checks on a £200 loan.
As a generalisation, if the income or expenditure details on your loan application weren’t right, the payday lender can’t be blamed for giving you the first couple of loans if they were small.
But if you carried on borrowing, the payday lender should have considered if the I&E figures were wrong.
And for large loans, especially where the interest is high or the customer has a lot of debt or recent repayment difficulties, lenders should have made more detailed checks for the first loan.
You can win affordability complaints at the Ombudsman even if the lender dismissed your complaint and said your application was not accurate.