Not upheld: irresponsible lending and unfair application of overdraft charges complaint against Lloyds Bank PLC

Decision detail

Summary

Miss M complained to Lloyds about overdraft charges, claiming the overdraft and limit increases were unaffordable and trapped her in financial distress. Lloyds accepted it shouldn't have increased the limit from April 2025 and refunded charges from that date, but Miss M remained dissatisfied. The ombudsman reviewed whether Lloyds acted fairly in providing the initial overdraft and increasing limits prior to April 2025, and whether it should have realised the overdraft had become unsustainable. The ombudsman found that Lloyds' initial checks were proportionate, Miss M's account showed sufficient monthly income to clear the overdraft within a reasonable period, and no objective indicators of financial difficulty were present. Although Miss M used the overdraft repeatedly, the ombudsman concluded this did not automatically indicate financial difficulty for a revolving credit facility and that Miss M appeared to be choosing to use it rather than being reliant on it. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the proportionality test for lending checks, noting that less thorough checks are reasonable in early stages of lending relationships. For the initial overdraft and limit increases prior to April 2025, Lloyds obtained sufficient information (income and credit search) to reasonably conclude Miss M could afford the facility. The ombudsman found that while prolonged overdraft usage can indicate financial difficulty, it does not automatically do so, particularly for open-ended revolving credit facilities. Critically, Miss M's account showed sufficient monthly credits to clear the overdraft within a reasonable period, regular returns to credit balance, and no objective indicators of financial difficulty as defined by FCA guidance. The ombudsman concluded that Miss M appeared to be choosing to use the overdraft rather than being reliant on it, and that Lloyds was reasonably entitled to this conclusion based on observable account conduct.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website