Not upheld: unfair lending relationship under section 140A Consumer Credit Act 1974; overdraft charges applied during alleged financial difficulty complaint against HSBC UK Bank Plc

Decision detail

Summary

Mrs B complained that HSBC unfairly applied overdraft charges to her current account during periods when she was experiencing financial difficulty and should not have been provided with an overdraft. Mrs B had held an arranged overdraft since 2007 with limits ranging from £100 to £5,000. The ombudsman assessed the complaint under section 140A of the Consumer Credit Act 1974, examining whether the lending relationship was unfair because HSBC allowed Mrs B to use her overdraft in an unsustainable or harmful way. After reviewing account statements from 2018 onwards, the ombudsman found no objective indicators of financial difficulty as defined by FCA guidance, and noted that Mrs B's account received sufficient credits to make inroads into the overdraft, she flexed her limit multiple times, and occasionally had funds to clear it completely. The ombudsman concluded HSBC was reasonably entitled to believe Mrs B was choosing to use her overdraft sustainably and did not uphold the complaint.

The Ombudsman's reasoning

The ombudsman applied section 140A of the Consumer Credit Act 1974 to assess whether the lending relationship was unfair. The key test was whether HSBC ought reasonably to have realised that the overdraft had become unsustainable or otherwise harmful, requiring corrective action. The ombudsman found that while prolonged overdraft usage can indicate financial difficulty, it does not automatically mean a customer is in difficulty. The ombudsman examined whether there were objective indicators of financial difficulty using FCA guidance, and found none clearly present. Critically, Mrs B's account showed sufficient incoming funds to make inroads into the overdraft balance, she was able to flex her limit up and down, and her account occasionally had funds to clear the overdraft entirely. The ombudsman concluded HSBC was reasonably entitled to believe Mrs B was choosing to use her overdraft rather than being forced to by financial circumstances.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website