This is an open-ended credit agreement, which allows the borrower to make multiple draw-downs as long as it’s within the credit limit. Loan agreements may include a hypothetical repayment schedule over 10 months.
What we look at
- Did the business do everything it was required to do?
- And if they didn’t, has their customer lost out as a result?
O ur answer to a complaint will reflect what’s fair and reasonable in the circumstances. And in considering what’s fair and reasonable, we’ll consider relevant law and regulation, regulators’ rules, guidance and standards, codes of practice, and what we consider to be good industry practice at the time.
- For each loan, did the lender carry out reasonable and proportionate checks to satisfy itself that the potential borrower would be able to repay the loan in a sustainable way?
- If they didn’t carry out these checks, would reasonable and proportionate checks have shown that the borrowing could have been repaid sustainably?
- Given this type of loan is intended for short-term use only, did the overall pattern of lending increase the indebtedness of the person involved in a way that was unsustainable or otherwise harmful?
- Did the lender act unfairly or unreasonably in some other way?
Although this information isn’t exhaustive, there are a number of key laws, rules and standards that lenders need to consider – and which they and we will need to take account of when looking into complaints from their customers.
In summary, it’s clear from both the OFT’s Irresponsible Lending Guidance and the FCA’s Consumer Credit Sourcebook (CONC) that no credit check payday loans Ironton OH both regulators required an assessment of affordability which was proportionate – to determine if a prospective borrower would be able to repay their loan. And both regulators provided guidance that lender could consider when completing this assessment.
In addition, both regulators have stressed that these products aren’t suitable as a longer-term source of credit – and that there’s potential for consumer detriment if they are used in this way.
The Office of Fair Trading (OFT) and the Consumer Credit Act 1974
Before , the regulator for this type of credit was the OFT. The Consumer Credit Act 1974 (CCA) set out the factors which the OFT needed to consider when deciding whether to give a business a consumer credit licence.
The OFT also asked lenders to complete a borrower-focussed assessment of affordability. This was to see if the prospective borrower could afford to repay the money in a sustainable manner. This is set out in the OFT’s guidance for creditors for irresponsible lending.
There was no set list of checks a lender needed to complete. But the checks should have been proportionate to the circumstances of each loan. This could include considerations about the amount borrowed and the prospective borrower’s borrowing history. Section 4.12 of the Irresponsible Lending Guidance gave examples of the types and sources of information a lender might want to consider. In 2011, an assessment of creditworthiness also came into force in the CCA.
Section 6.25 of the OFT’s Irresponsible Lending Guidance said, in relation to short-term loans, that it would be a deceptive and/or unfair practice (which in the OFT’s view may constitute irresponsible lending practices) if a lender were to repeatedly refinance (or ‘roll over’) a borrower’s existing credit commitment for a short-term credit product in a way that is unsustainable or otherwise harmful.
- the OFT considers that this would include a creditor allowing a borrower to enter into a number of separate agreements for short-term loan products, one after another, where the overall effect is to increase the borrower’s indebtedness in an unsustainable manner