Not upheld: irresponsible lending - inadequate affordability checks complaint against Specialist Motor Finance Limited

Decision detail

Summary

Miss W complained that SMF lent to her irresponsibly when providing a £6,495 motor finance loan in February 2020 with monthly repayments of £203. She argued that insufficient affordability checks failed to identify that repayments were unaffordable. SMF's checks revealed an income verification discrepancy (£1,667 verified net versus £20,000 declared salary) and Miss W had three previous defaults, yet SMF estimated she had £660 monthly disposable income. The ombudsman found SMF's checks were not fully proportionate given these red flags, but upon conducting their own assessment with the correct income figure of £1,358, determined the loan would have been affordable, particularly when accounting for an existing loan settlement freeing up £172 monthly. The complaint was not upheld as SMF would likely have reached the same lending decision had it performed proper checks.

The Ombudsman's reasoning

The ombudsman acknowledged that SMF failed to perform fully proportionate affordability checks given the income verification discrepancy and Miss W's previous defaults. However, the ombudsman conducted their own affordability assessment using the correct income figure (£1,358) and other available information, which showed remaining disposable income of £142 per month. Critically, the ombudsman found that when accounting for the £172 monthly income that would become available after an existing loan settled in two months, the repayments would become sustainable for the remainder of the loan term. Therefore, even with proper checks, SMF would likely have approved the loan.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website