Not upheld: irresponsible lending - proportionality of affordability checks complaint against Monzo Bank Limited

Decision detail

Summary

Mr W complained that Monzo failed to conduct proportionate checks before lending him two personal loans totalling £9,000 and £9,576.31 respectively. Mr W argued that Monzo should have considered his overall borrowing pattern, overdraft reliance, and the fact that loan 2 was used to refinance loan 1, which he claimed indicated financial difficulties. The ombudsman found that Monzo carried out proportionate checks appropriate to each stage of the lending relationship, verified Mr W's income through credit reference agency tools, obtained no adverse credit markers, and calculated that both loans were affordable based on the information available. The ombudsman rejected the argument that refinancing indicated financial difficulty, noting that loan 1 was repaid as expected and Mr W's income had increased between loans. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the FOS approach to irresponsible lending, which requires proportionate checks appropriate to the circumstances. For loan 1, as a first loan with no signs of financial difficulty and no adverse credit markers, it was reasonable for Monzo to rely on declared income, credit reference agency verification, statistical data for outgoings, and credit search results. For loan 2, although Mr W's debt had grown, his income had also increased proportionally, there were still no adverse credit markers, and he had demonstrated ability to repay loan 1 without difficulty. The ombudsman rejected the argument that refinancing was a sign of financial difficulty, finding instead that loan 1 was repaid as expected. The ombudsman also considered overdraft usage but found that the overdraft had been previously removed and the current £700 limit was not concerning given Mr W had previously managed a larger overdraft. The ombudsman concluded that even considering sustainability and overdraft reliance, the checks were proportionate and the loans were affordable.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website