Gain Credit LLC · DRN-3117414

The complaint Miss M complains that Gain Credit LLC, trading as Drafty, lent to her irresponsibly. She says that Drafty should have checked her credit record properly and if it had it would never have lent to her. ‘My finances and personal situation was not sufficiently checked to make sure I’d be in a position to pay back the loan such as income, expenditure and financial history.’ What happened Drafty offered a credit facility which commenced with a limit being determined and then the customer was able to draw down the amounts he or she requires. The credit was unsecured and had no fixed duration. Drafty’s records show that Miss M applied for £1,000. Miss M declared a monthly income of £2,700 with outgoings of £1,050. Drafty says that it carried out checks. The credit limit for Miss M was arranged to be £1,000 in September 2019. Drafty explained to Miss M in its final response letter (FRL) that: Your stated monthly income was £2700.00. Your stated monthly expenditure was £1050.00, leaving you with a monthly disposable income of £1650.00. Furthermore, we asked to subdivide those expenses into specific categories, and were provided with the following breakdown: £475.00 for Mortgage / Rent £75.00 for Utilities £125.00 for Food £75.00 for Transport £75.00 for Credit Expenses £225.00 for Other Payments • Using national averages for expense categories where data is available as a third party verification of this submission, we revised upwards the total stated expenses and this still resulted in a viable disposable income • The credit line amount approved was £1000.00 which, if the line was fully drawn down for a full-month, resulted in a minimum monthly payment to Drafty of £111.57, well within the overall disposable income • A credit worthiness check was completed and the third party credit reference agency confirmed a rating which was satisfactory for the line of credit obligation’

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The credit agreement (clause 5) set out the total cost of the credit based on some assumptions to illustrate the likely cost to Miss M. On the assumption that Miss M drew down the full £1,000 on the first day and then repaid it over 12 months in equal instalments then the total amount payable would have been just under £1,339. This would have equated to about £112 a month. The arrangement did include a ‘Billing Cycle’ which meant that a statement was produced ten days before Miss M’s salary payment date and it gave the minimum payment required for that cycle. It had to be the higher of certain calculations in the agreement at clause 6 which I have not set out here. A Continuous Payment Authority was used to take the minimum payments on or near Miss M’s monthly salary date. Other ways of payment were made available. One of our adjudicator’s looked at the complaint and thought that Drafty’s initial approval for the account in September 2019 was satisfactory. She also thought that Drafty ought to have realised that Miss M was struggling from the autumn of 2020 and so our adjudicator thought that it should put things right for Miss M from January 2021. Miss M thinks that the facility should never have been approved for her. She questions the credit search Drafty carried out and referred to the County Court Judgment (CCJ) entry on her personal credit file in March 2018. She said she had reviewed her bank statements for September 2019 and had credit commitments to a loan company, three credit cards, a firm of solicitors to repay the CCJ, and to a doorstep loan company. I appreciate this must have been a lot but most are quite regular credit arrangements and Ms M has not sent to us the amounts/details involved or copy bank statements for that period. The complaint remained unresolved and was passed to me to decide. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I have taken into account the law, any relevant regulatory rules and good industry practice at the time the credit was offered. Before lending money to a consumer or approving a credit limit a lender should take proportionate steps to understand whether the consumer will be able to repay what they are borrowing in a sustainable manner without it adversely impacting on their financial situation. A lender should gather enough information for it to be able to make an informed decision on the lending. Although the guidance and rules themselves did not set out compulsory checks, they did list several things a lender could take into account before agreeing to lend. The key element was that any checks needed to be proportionate and had to consider a number of different things, including how much was being lent and when the sum being borrowed was due to be repaid. I need to explain to Miss M that upon first approaching Drafty in September 2019 it would not be expected, and would not be proportionate, for Drafty to carry out a full and comprehensive financial review. Miss M was a new customer. And bearing in mind the credit limit granted and the monthly payments required to repay the facility within a reasonable period (around £112) Drafty was entitled to rely on the information given to it which suggested that Miss M had enough disposable income to service a credit facility with a limit of £1,000. And it carried out its own credit search.

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I note that Miss M has questioned how her credit score for Sept 2019 was ‘63’ and Drafty had recorded it as over 600. But these are not a comparison of like with like. I think that the Drafty ‘score’ may have been an internal company created score and may not have come from an external credit reference agency (CRA) at all. And even it did emanate from an external CRA, I understand different credit reference agencies have different methods of calculating this ‘score’. And I’m not familiar with how this is done. But in any event I don’t think this has much bearing on the checks Drafty did and it’s lending decisions, and I say this because lenders offering these types of credit facility often lend to individuals who may have a lower than usual credit score or a mixed credit history. I have no better answer for her on this ‘score’ point. I do think that a CCJ 18 months before the approval date of the Drafty facility was significant, but I have nothing to indicate whether Drafty did or did not know about it. If it did know about it then, as our adjudicator said, having a CCJ in the past is not a reason not to lend. And if Drafty did not know about it then it would have made its lending decision unaware. But in order to resolve this complaint, I am being asked to decide whether I think that Drafty’s checks at the time Miss M applied to it for the credit facility were proportionate. I have used information I have about Miss M and considered the situation carefully. Having looked at all that Miss M has given me and Drafty’s information and submissions then I think that the initial credit facility approval was carried out after checks I would consider having been proportionate. And the limit approved was likely to have appeared serviceable and able to be repaid within a reasonable time which is one of the criteria it uses. When the facility was approved, Drafty was regulated by the Financial Conduct Authority (FCA). The FCA had issued guidance on this type of lending and what it says should be expected from lenders when granting these types of loans. From August 2020, I think Drafty should have been on notice that Miss M may have been experiencing difficulties sustaining her repayments. And by 1 January 2021, I think Drafty should have permanently suspended the facility. When Miss M missed her repayment on 31 December 2020, I think Drafty should have permanently suspended her account and prevented her from drawing down further credit. By this point, Drafty would have seen that Miss M had not paid anything towards her facility in August, November and December 2020. So, I think it was likely that she was struggling to meet her repayments and the facility had become unsustainable. Miss M had complained to Drafty about irresponsible lending on 20 November 2020, so Drafty was aware that Miss M was having difficulties repaying what she owed, which had led her to complain. So, I think that by continuing to offer the credit facility, Miss M was exposed to additional interest charges. Putting things right By allowing Miss M to continue using her facility from1 January 2021, I think she lost out as a result. Drafty should put things right as follows: A) Drafty should remove all interest, fees and charges from the account from 1 January 2021; and B) treat all payments Miss M has made towards her account since 1 January 2021 as though they had been repayments of outstanding principal; and

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C) if at any point Miss M would have been in credit on her account after considering the above, Drafty will need to refund any overpayments with 8% simple interest* calculated on these payments, from the date they would have arisen, to the date the refund is made; and D) if there is an outstanding principal balance, then Drafty can use any refunds calculated as part of “C” to repay this. If a balance remains after this then Drafty should try to agree an affordable repayment plan with Miss M; and E) Drafty should remove any adverse payment information recorded on Miss M’s credit file from 1 January 2021. *HM Revenue & Customs requires Drafty to deduct tax from this interest. Drafty should give Miss M a certificate showing how much tax has been deducted, if she asks for one. My final decision My final decision is that I uphold Miss M’s complaint in part and direct that Gain Credit LLC, trading as Drafty, does as I have outlined above. Under the rules of the Financial Ombudsman Service, I’m required to ask Miss M to accept or reject my decision before 22 December 2021. Rachael Williams Ombudsman

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