Not upheld: irresponsible lending - proportionality of affordability checks for credit limit increases complaint against NewDay Ltd trading as Aqua

Decision detail

Summary

Mrs P complained that NewDay Ltd (Aqua) irresponsibly lent to her by approving an initial £300 credit card and increasing the limit four times to £6,150 without conducting proportionate affordability checks. The ombudsman found that while Aqua should have made further checks at two of the four increases (December 2022 and December 2023) due to warning signs such as income discrepancies, overlimit fees, arrears, and rising debt, the lender would still have approved the increases based on Mrs P's demonstrated disposable income and repayment capacity shown in her bank statements. The complaint was not upheld as the ombudsman concluded Aqua made fair lending decisions throughout.

The Ombudsman's reasoning

The ombudsman applied the principle that lenders must make proportionate checks before approving credit or increasing limits, considering factors such as credit type and amount, borrower's income and credit history, repayment amounts and frequency, and personal circumstances. For the initial approval and April/August 2023 increases, the ombudsman found the checks proportionate given the low debt-to-income ratios, absence of recent adverse credit information, and evidence of overpayments. For the December 2022 increase, while the ombudsman found Aqua should have made further checks due to the treble income discrepancy, overlimit fees, arrears, and near-quadrupling credit limit increase, the ombudsman concluded that even if Aqua had reviewed bank statements, they would still have approved the increase given Mrs P's disposable income available for non-essential spending. Similarly, for the December 2023 increase, although further checks should have been made, the ombudsman concluded approval would still have been fair based on Mrs P's demonstrated repayment capacity and available disposable income.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website