Loans2Go Limited · DRN-3032258

The complaint Mr M has complained that Loans2Go Limited lent to him irresponsibly. What happened Mr M was given three logbook loans by Loans2Go between 2014 to 2015. The loans were secured each time against a vehicle that he owned. From what I’ve seen:  Loan 1 in March 2014 was for £400 repayable in 12 monthly instalments of around £73. The total amount payable if the loan ran to term, including interest, was around £880.  Loan 2 of £500 was taken around six months later in September 2014, repayable in 12 monthly instalments of around £91. The total amount payable if the loan ran to term, including interest, was around £1,100.  Loan 3, taken in June 2015 was for £500 repayable in 12 monthly instalments of around £91. The total amount payable if the loan ran to term, including interest, was around 1,100. Mr M complained that Loans2Go failed to carry out proper checks and that the loans were unaffordable for him. An adjudicator looked into the complaint and thought Loans2Go shouldn’t have provided Mr M with any of the loans. Loans2Go accepted the adjudicator’s view that it ought not to have provided Loan 3, but it didn’t agree with the assessment about the first two loans. So the complaint has been 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. We’ve set out our approach to considering unaffordable and irresponsible lending complaints on our website - including the key relevant rules, guidance, good industry practice and law. And I’ve considered this approach when deciding Mr M’s complaint. I think there are overarching questions I need to consider in order to decide what’s fair and reasonable in the circumstances of this particular complaint:  Did Loans2Go complete reasonable and proportionate checks each time to satisfy itself that Mr M would be able to repay his loans in a sustainable way? If so, did it make a fair lending decision each time? If not, what would reasonable and proportionate checks have shown at the time?  Did Loans2Go act unfairly or unreasonably in some other way? Loans2Go needed to take reasonable steps to ensure that it didn't lend to Mr M

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irresponsibly. This means that it should have carried out proportionate checks to satisfy itself that he could repay each loan in a sustainable way. The lender was required to carry out a borrower focussed assessment - sometimes referred to as an “affordability assessment” or “affordability check”. The checks had to be “borrower” focussed – so Loans2Go had to think about whether repaying the loans sustainably would cause any difficulties or adverse consequences for Mr M. In other words, it wasn’t enough for Loans2Go to simply think about the likelihood of it getting its money back, it had to consider the impact of loan repayments on Mr M. Checks also had to be “proportionate” to the specific circumstances of each loan application. In general, what constitutes a proportionate affordability check will be dependent upon a number of factors including – but not limited to – the particular circumstances of the consumer, such as their financial history, current situation and outlook, and any indications of vulnerability or financial difficulty and the amount / type / cost of credit they are seeking. In light of this, I think that a reasonable and proportionate check ought generally to have been more thorough:  the lower a customer’s income (reflecting that it could be more difficult to make any loan repayments to a given loan amount from a lower level of income).  the higher the amount due to be repaid (reflecting that it could be more difficult to meet a higher repayment from a particular level of income); and  the longer the term of the loan (reflecting the fact that the total cost of the lending is likely to be greater and the customer is required to make payments for an extended period).  the greater the number and frequency of loans, and the longer the period of time during which a customer has been given loans (reflecting the risk that repeated refinancing may signal that the borrowing had become, or was becoming, unsustainable). I’ve carefully considered all the evidence, arguments, and information I’ve seen about this matter and what it means for Mr M. Loans to Go says it checked Mr M’s income and expenditure before each loan. It says it also carried out credit checks. I think in the circumstances the checks that were carried out before the first loan were reasonable and proportionate. But I don’t think that Loans2Go made fair lending decisions and I will explain why. Loan 1 Loans2Go calculated Mr M’s monthly income and expenditure and it thinks that he had sufficient disposable income to repay the first loan. Loans2Go says the amount being borrowed and the monthly repayments were relatively low, and that Mr M could afford the lending. From what I’ve seen, Loans2Go was aware from its checks that Mr M had an active County Court Judgment (CCJ) and at least one other long-term loan. Loans2Go says, given the type of lending, it would have expected to see some adverse information on a customer’s credit report. It also says that one CCJ would not have been a cause for concern. I have

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considered carefully what Loans2Go has said. But given the lender’s own calculations about Mr M’s regular expenditure, his payments to existing creditors and his loan repayments, I think it ought reasonably to have realised that Mr M would have a very limited amount of disposable income each month to cope with unexpected emergencies. Indeed, from what I’ve seen, Mr M did in fact return to borrow for a second time only part way through the loan term, due to ‘unexpected bills. Taking everything into account and what it knew about Mr M’s wider circumstances, I think Loans2Go ought reasonably to have concluded that Mr M would unlikely be able to afford to repay loan 1 sustainably and so ought reasonably to have declined the loan. Loan 2 Around six months later Mr M returned to Loans2Go to borrow for a second time. Loan 2 was used to settle the first loan and provide the remainder in cash. Loans2Go may have assessed that, on the face of it, given the amount being borrowed, the loan was affordable for Mr M. But I think that Loans2Go focussed its calculation of whether the loan was affordable for Mr M on a pounds and pence basis. As I’ve already explained, the lender was required to establish whether the borrower could sustainably meet his loan repayments – not just whether the loan payments were technically affordable on a strict pounds and pence calculation. The loan payments being ‘affordable’ on this basis might be an indication a consumer could sustainably make their repayments. But it doesn't automatically follow this is the case. This is because the relevant regulations define sustainable as being without undue difficulty – in particular without incurring or increasing problem indebtedness. The customer should be able to make repayments on time, while meeting other reasonable commitments; as well as without having to borrow to meet the repayments. And it follows that a lender should realise, or it ought fairly and reasonably to realise, that a borrower won’t be able to make their repayments sustainably if they’re unlikely to be able to make their repayments without borrowing further. Mr M had returned part way through the first loan term to borrow for a second time, for a slightly higher amount and for an increased monthly cost. The loan application states that the purpose of the loan was for ‘unexpected bills on car’. I think the credit checks would have indicated to the lender that Mr M might be struggling to repay his outstanding CCJ. I think in the circumstances, Loans2Go ought reasonably to have realised that for its checks to be reasonable and proportionate, it needed a better understanding of Mr M’s current financial position - to ensure that he could sustainably repay his second loan over the whole loan term. So I think the lender should have gone further on this occasion and carried out more in- depth checks to independently verify some of the information Mr M had given about his financial situation – for example by asking to see bank statements. Mr M has provided us with copies of his bank statements for the period leading up to his second loan application so I can determine what better checks might have shown Loans2Go at that time. And I have considered this information in light of what I’ve set out above. Of course, different checks might show different things. But I think if Loans2Go had carried out what I consider to be proportionate checks, I think it’s likely it would have discovered more about Mr M’s financial position. In particular I think it more likely than not the lender would have seen from Mr M’s bank statements that his outgoings were more than he had estimated and that he had a number of returned direct debits, returned cheques and unpaid transactions fees. Overall, I think Loans2Go ought reasonably to have realised that this consumer was already struggling financially and that he was most likely borrowing for a

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second time in order to maintain his financial commitments. I don’t think Loans2Go should have provided Mr M with loan 2. Loan 3 Loans2Go has already accepted that it ought not to have provided the third loan to Mr M, so I do not need to consider this loan further. Mr M has suggested that his car was repossessed but Loans2Go has told us it did not repossess the car and that its understanding is that the vehicle was scrapped. Overall, I haven’t seen sufficient information for me to make any findings about this issue. I haven’t seen anything else which makes me think that Loans2Go treated Mr M unfairly in any other way. But I don’t think it should have provided loans 1 or 2 to him. And Loans2Go has accepted that it ought not to have provided the third loan to him. So I am upholding Mr M’s complaint about his loans and Loans2Go needs to put things right. Putting things right I think it’s fair and reasonable for Mr M to repay the principal amount that he borrowed, because he had the benefit of that lending. But he has paid interest and charges on loans that shouldn’t have been provided to him. If Loans2Go sold any outstanding debt payable in respect of Mr M’s loans, it should buy it back from the third party, if it’s able to do so, and then take the following steps. If Loans2Go isn’t able to buy any outstanding debt back then it should liaise with the new debt owner to achieve the results outlined below. Loans2Go should:  Remove all interest, fees, and charges from Loans 1, 2 and 3 and treat all the payments Mr M made as payments towards the capital.  If reworking Mr M’s loan account results in him having effectively made payments above the original capital borrowed, then Loans2Go should refund these overpayments with 8% simple interest calculated on the overpayments, from the date the overpayments would have arisen, to the date the complaint is settled*.  If reworking the account leaves an amount of capital still to be paid, then Loans2Go should try to agree an affordable repayment plan with Mr M, bearing in mind its obligation to treat him positively and sympathetically in these discussions.  Loans2Go might have already returned the logbooks to Mr M, but if it has not done this, it should cancel the bills of sale and return the V5 document to him once any outstanding capital has been repaid.  Remove any adverse information recorded on Mr M’s credit file in relation to the loans. *HM Revenue & Customs requires Loans2Go to deduct tax from this interest. Loans2Go should give Mr M a certificate showing how much tax it’s deducted if he asks for one. My final decision For the reasons given above, I uphold this complaint and direct Loans 2 Go Limited to put things right as set out above.

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Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M to accept or reject my decision before 16 January 2022. Sharon Parr Ombudsman

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