Not upheld: Guarantor loan complaints complaint against Iwoca Ltd

Decision detail

Summary

Mr L, a director of company U, complained that Iwoca Ltd failed to properly assess his affordability to meet personal guarantee liabilities when providing a £15,000 revolving credit facility to U in November 2020. When U fell into financial difficulties and was dissolved in May 2024, Mr L argued that Iwoca should have conducted affordability checks and would have discovered that his income was linked to the company, making the guarantee unaffordable if U defaulted. The ombudsman rejected the complaint, finding that because the underlying loan was made to a limited company rather than an individual, it was unregulated and CONC did not apply. Iwoca Ltd's duties were limited to ensuring Mr L understood the guarantee, which it accomplished through clear documentation. The ombudsman noted that director guarantees are typical for small company borrowing and that most guarantors have financial interests in the borrowing business.

The Ombudsman's reasoning

The key issue is that the underlying credit facility was provided to U, a limited company, not to an individual. The Consumer Credit Act 1974 only regulates lending to individuals (natural persons, sole traders, or small partnerships), not to limited companies. Therefore, CONC does not apply to either the loan or the personal guarantee. Iwoca Ltd's duties were limited to ensuring Mr L understood the nature and extent of the guarantee, which it satisfied through clear documentation. While Mr L's involvement with the company meant that its failure would likely trigger the guarantee and affect his income, this is typical for director guarantees of small company borrowing. The ombudsman noted that most guarantees for small company debts are provided by directors with financial interests in the business.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website