Not upheld: Irresponsible lending complaint against Equifinance Limited

Decision detail

Summary

Miss O and Mr O complained that Equifinance acted irresponsibly in lending them £16,000 for debt consolidation in October 2017 given their financial circumstances. They were self-employed with variable income, had recently missed some payments, and Miss O was not working. Equifinance assessed affordability based on verified income, actual expenditure figures, and stress testing, calculating disposable income of over £450 per month even after accounting for potential mortgage rate increases. The ombudsman found the assessment reasonable and compliant with regulatory requirements, accepting the borrowers' explanations for below-average expenditure and rejecting the argument that lenders must anticipate all possible future income reductions. The complaint was not upheld as the mortgage was affordable at the time of lending and subsequent difficulties arose from unforeseen circumstances including Covid-19 and illness.

The Ombudsman's reasoning

The ombudsman found that Equifinance conducted a reasonable affordability assessment compliant with MCOB rules by obtaining verified income evidence and actual expenditure information. The borrowers' explanations for expenditure below ONS averages were plausible and acceptable, as ONS figures are averages and not prescriptive. The assessment of Mr O's income based on four months of contractor payslips was not unreasonable, particularly given the additional tax year information obtained. The stress test, even at the lower 2.5% rate, showed affordability with over £400 disposable income remaining. The ombudsman rejected the suggestion that lenders must anticipate all possible future income reductions, noting that disposable income serves as a buffer for unexpected expenses. The later payment difficulties arose from Covid-19 and subsequent illness and employment changes that could not have been foreseen in 2017. The borrowers' prior credit management and their proactive approach to consolidation to prevent escalation supported the reasonableness of the lending decision.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website