Upheld: irresponsible lending - inadequate affordability checks complaint against Mitsubishi HC Capital UK PLC trading as Novuna Personal Finance

Decision detail

Summary

Mr S complained that Novuna provided him with two unaffordable loans: £5,000 in July 2022 and £5,750 in December 2024. The ombudsman upheld the complaint regarding the second loan, finding that Novuna's affordability checks were inadequate given that Mr S's credit debt had doubled and accounted for over 40% of his income, he had misrepresented his income (declaring £49,500 when actual income was lower), and he had undisclosed monthly obligations of £250 to a family member. The ombudsman concluded the loan was neither affordable nor sustainable, particularly as Mr S subsequently entered a debt management plan. Novuna was ordered to refund all interest, fees, charges and insurances paid, plus 8% simple interest on any overpayments, and to remove adverse credit file information.

The Ombudsman's reasoning

The ombudsman found that Novuna's checks were not reasonable and proportionate given the loan size, term, and Mr S's known financial situation. The significant increase in credit debt (over 40% of income), the discrepancy between declared income (£49,500) and actual income received, and the undisclosed £250 monthly family loan payments should have prompted further investigation. Although Mr S may have been incentivized to misrepresent his circumstances, Novuna had a responsibility to verify income through pay slips and delve deeper. On balance, considering the income discrepancy, doubled credit debt since the first loan, and Mr S's subsequent entry into a debt management plan, the loan was neither affordable nor sustainable.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website