Not upheld: personal guarantee - affordability assessment and enforceability complaint against New Wave Capital Limited (trading as Capital on Tap)

Decision detail

Summary

Mr W, as director and guarantor for his company W's business credit facility with CoT, complained that CoT should not have accepted his personal guarantee as it was unaffordable for him and that the requirement was inadequately highlighted. When W fell into arrears, CoT pursued Mr W as guarantor and sold the debt to collection agents. The ombudsman found that the guarantee documentation clearly explained the nature of the obligation, Mr W's potential liability, and strongly recommended independent legal advice. Since business lending is unregulated, there is no specific requirement for lenders to conduct affordability checks on guarantors, and CoT's conduct met the standards of fair dealing and good industry practice.

The Ombudsman's reasoning

The ombudsman applied the Lending Standards Board's Standards of Lending Practice as a guide to good industry practice for business lending guarantees. The guarantee documentation clearly informed Mr W of the requirement, the reason (to secure W's debts), his potential liability, and strongly recommended independent legal advice. Since business lending is unregulated, there is no specific obligation to conduct affordability checks on guarantors, and CoT's conduct met the standards of fair dealing and good industry practice.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website