Free Guide - Irresponsible Lending

About this guide

Irresponsible lending – sometimes called unaffordable lending – is when a bank allows someone to take out more debt than they can afford to pay back.

This issue is currently driving record levels of credit card complaints – with over 13,000 FOS cases about this issue so far this year.

The rising tide of complaints about this issue reflects how, in times of intense financial pressures, millions of people are being saddled with debt from loans they should never have been given in the first place.

Banks must ensure their customers don’t take on more debt than they can afford to pay back – and it seems that they have been getting slack.

In this guide, we explain the rules around lending, what counts as ‘irresponsible’, and what you can do if you feel that you have been driven into financial hardship by your lender.

The Law on lending

All firms – banks, creditors and lenders – that provide forms of credit facilities are regulated by the Financial Conduct Authority (FCA) and, in the case of credit cards and loans, under the Consumer Credit Act 1974.

The laws set out within the Consumer Credit Act 1974 stipulate that lenders are required to ensure that those they are providing credit to can repay the costs without being forced into financial hardship, which is assessed through a creditworthiness assessment.

In providing funds or credit to people who cannot afford the repayments financial firms have the power to push people into serious financial troubles which can adversely affect them for years, even after they have cleared their debts.

When is lending “irresponsible”?

Irresponsible lending occurs when financial institutions give loans, credit cards, overdrafts or other financial products like store cards and catalogues to people who are unable to repay them.

While we all have a responsibility to pay back any money we borrow, it is the responsibility of lenders to ensure that those they are selling financial products and/or credit to can keep up the payments without undue difficulty.

Categories of irresponsible lending

Overlending
If a lender approves loans that clearly outweigh the borrower’s repaying ability, they would be considered irresponsible for leaving them burdened with debt that they will struggle to repay.

Failing to Carry out Checks
Lenders must conduct affordability checks on their customers to determine their repaying ability. This takes into account things like their credit history and income.
If they do not do this properly, they may end up approving an application for a loan, credit card or overdraft that they shouldn’t have.

Predatory Lending
In some extreme cases, banks deliberately target vulnerable individuals, such as those with poor credit scores, for loans or credit cards.
They do this so that they can impose high levels of interest on their repayments. This is a particularly cruel practice – and further disempowers people who may have already been struggling financially.

Breaching CONC Rules
If an “unfair relationship” was created by the lender’s failure to establish a suitable agreement, they could be in breach of the Consumer Credit Sourcebook (CONC).
An unfair relationship is a specific legal term and can cover a few different things – including previous dealings where the customer felt bullied by their bank or where the bank increased the borrower’s indebtedness in a way that was unsustainable or otherwise harmful.

How to get Redress

Breaching the guidelines for responsible lending results in the loan or credit agreement being unfair on the customer – who then has the option to claim compensation.

If a customer pursues and is granted redress, any compensation granted would aim to redress the balance and restore the consumer to the financial position they would otherwise have been in.

Complain to your lender
While lenders are bound to protect their customers from financial hardship, they may deny accountability for irresponsible lending. However, you can advocate for yourself by making an official complaint – and explaining how you feel the bank treated you unfairly by failing to conduct proper checks on your credit history or the feasibility of repayments.

If you have a compelling case for irresponsible lending, it is worth submitting a complaint to your lender.
Use Resolver to raise a complaint for free.

Complaint Checklist

When complaining, you should provide as much detailed evidence as you can. Try to include things like:

A clearly written explanation of how the bank has treated you unfairly by pushing you into financial hardship – whether they failed to run proper checks or encouraged you to take out more credit than you could feasibly afford to pay back.
A clearly written explanation of any circumstances that you feel should have been checked or taken into account at the time of the agreement – and limited the amount you borrowed.
A clearly written explanation of how the debt you have incurred has impacted you – giving as much detail as possible about the kinds of financial hardship you face.
Screenshots of chat logs, emails or exchanges with your lender that suggest they have treated you unfairly.
Records of loans, credit agreements and any other financial transactions related to the money you were lent.

Going to the Financial Ombudsman

If your bank rejects your complaint or takes more than eight weeks to give you a proper response, you can take your complaint to the Financial Ombudsman Service (FOS) for an independent investigation.

As well as providing evidence relating to the fraud itself, you should also provide copies of your complaint to the bank and subsequent correspondence – to show that they have failed to adequately respond to your concerns or refused to take responsibility for their irresponsible lending.

To send a complaint to the FOS, you can use the escalation function in your Resolver case file, or submit it directly via their website: https://www.financial-ombudsman.org.uk/make-complaint

If they find that you’ve been treated unfairly by your bank, they’ll ask them to put things right. This would usually mean putting you back in the financial position you’d be in if the lender hadn’t lent you credit.

Making an Irresponsible Lending Claim

We know that people who have been treated unfairly by their banks and been struggling with their finances have already gone through an extremely stressful ordeal – and often lost their faith in financial institutions to fulfil their duty of care.

We understand that in these circumstances the process of complaining can add more distress – or put people off pursuing fair treatment.

If you’ve been pushed into financial hardship due to irresponsible lending, our recommended provider Credit Claim could pursue a claim on your behalf.

Claiming, rather than just complaining or going to court by yourself, will save you time and energy and you should be protected from legal costs later on – paying a fee only if you are awarded compensation.