Not upheld: irresponsible lending - inadequate affordability checks complaint against Lloyds Bank Plc

Decision detail

Summary

Mr C complained that Lloyds lent to him irresponsibly in November 2019 by offering a £10,000 loan when he was already in financial distress, making minimum credit card payments, relying on overdraft facilities, and increasingly dependent on credit. Lloyds assessed the loan using automated processes with income derived from account turnover and expenditure estimated through modelling and credit file scoring. The ombudsman found Lloyds' checks were not reasonable or proportionate for the loan size and 60-month term, lacking proper income verification and detailed expenditure analysis. However, the ombudsman concluded that reasonable checks would have revealed approximately £230 monthly disposable income after the new loan repayment, sufficient to sustain the lending, particularly given the consolidation purpose would likely improve the borrower's financial position. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman found that while Lloyds' checks were not reasonable or proportionate for a £10,000 loan over 60 months (lacking declared income verification, relying on account turnover alone, using only summary-level credit data, and deriving most expenditure from modelling rather than Mr C's input), the critical question was what reasonable checks would have revealed. Based on current account statements, reasonable checks would have shown disposable income of approximately £230 per month after the new loan repayment. Although modest, this was sufficient to support the lending, particularly given that consolidation of existing debt would likely achieve some improvement in expenditure. The ombudsman also considered the dispute over mortgage costs and concluded on the balance of probabilities that £350 was the correct figure declared at application.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website