Mobile Money Limited · DRN-2150652

The complaint Miss M complains that Mobile Money Limited didn’t do enough checks before lending to her. What happened Miss M took out a logbook loan with Mobile Money on 20 October 2017. She borrowed £675 for 18 months with scheduled repayments of £106.38. The loan was repaid on 31 May 2019. Miss M says if Mobile Money had done better checks it would have seen she had other short-term loans on her credit file, along with defaults and County Court Judgements (CCJs). She says that the interest on the loan was £1,442.89, but that Mobile Money had partially accepted her claim and offered a full and final settlement of a £500 refund. But Miss M says it should never have issued the loan in the first place as she was missing payments on other financial commitments because the repayments were unaffordable to her. Miss M says she couldn’t risk the car being repossessed as she used it daily to get to work. She adds that the daily calls from Mobile Money when she got behind with the payments caused her a great deal of stress and she ended up taking a further short-term loan to make the repayment. Mobile Money says it completed a full assessment of Miss M’s income and expenditure that included verifying her income and checking her credit file. It says its affordability calculation showed Miss M had a monthly surplus of £45.21 after making the repayments, most of which were made on time. However, it says some of the information provided warranted further checks and accepts it could have done more to ensure the loan was suitable for Miss M. On that basis it offered Miss M a £500 refund in full and final settlement of the complaint. Our adjudicator recommended the complaint should be upheld. She found that Mobile Money’s checks showed Miss M had a disposable income of £45 per month which she wasn’t satisfied was enough considering the chance of unexpected costs. She added that the recent CCJs and defaults should have indicated to Mobile Money that Miss M was already struggling with existing credit commitments and was unlikely to be able to sustainably repay the loan. Our adjudicator recommended that Mobile Money should refund any payments Miss M made above the principal (plus 8% statutory interest) and ensure that any associated negative information is removed from her credit file. Mobile Money responded to say, in summary, that it had already taken into account a 5% income contingency when calculating the £45, so the true surplus was nearer £118. It acknowledged that its checks should maybe have gone further given what was on Miss M’s credit file, but could not conclude that Miss M’s bank statements showed the loan was unaffordable given her expenditure on discretionary items. What I’ve decided – and why

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I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I need to take into account the relevant rules, guidance and good industry practice. The Financial Conduct Authority (FCA) was the regulator when Mobile Money lent to Miss M. Its rules and guidance obliged it to lend responsibly. As set out in the regulator’s Consumer Credit Sourcebook (CONC), this meant that Mobile Money needed to take reasonable and proportionate steps to assess whether or not a borrower could afford to meet its loan repayments in a sustainable manner over the lifetime of the agreement. CONC 5.3.1G states that: 1. In making the creditworthiness assessment or the assessment required … a firm should take into account more than assessing the customer's ability to repay the credit. 2. The creditworthiness assessment and the assessment required … should include the firm taking reasonable steps to assess the customer's ability to meet repayments under a regulated credit agreement in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences. Repaying debt in a sustainable manner was defined as being able to meet repayments out of normal income while meeting other reasonable commitments; without having to borrow further to meet these repayments; without having to realise security or assets (CONC 5.3.1G - 6) or without incurring or increasing problem indebtedness (ILG 4.3). (The Office of Fair Trading was the previous regulator and it produced a document entitled ‘Irresponsible Lending Guidance’ which the FCA referenced in its consumer handbook. CONC 5.3.1G – 6 specifically referenced ILG 4.3.) In general, I’d expect a lender to require more assurance the greater the potential risk to the borrower of not being able to repay the credit in a sustainable way. So, for example, I’d expect a lender to seek more assurance, potentially by carrying out more detailed checks  the lower a person’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);  the longer the term of the loan (reflecting the fact that the total cost of the credit is likely to be greater and the borrower is required to make payments for an extended period). In addition, as per CONC 5.3.1G – 4b: it is not generally sufficient for a firm to rely solely for its assessment of the customer's income and expenditure, on a statement of those matters made by the customer. Bearing all of this in mind, in coming to a decision on Miss M’s case, I have considered the following questions:

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 Did Mobile Money complete reasonable and proportionate checks when assessing Miss M’s loan applications to satisfy itself that she would be able to repay the loan in a sustainable way? o If not, what would reasonable and proportionate checks have shown?  Did Mobile Money make a fair lending decision?  Did Mobile Money act unfairly or unreasonably in some other way? With regard to the first question, I’m not satisfied that Mobile Money made reasonable and proportionate checks. I say that because:  Miss M’s credit file showed she’d had three CCJs since September 2016, the latest of which was awarded four months earlier;  There was a default on Miss M’s account from just three months earlier; So I consider Mobile Money should have carried out a full financial review before approving the loan because it seems from the information it had Miss M was having ongoing problems managing her money. I’ve had a look at Miss M’s bank statements to see what such a review is likely to have shown. I can see Miss M’s regular expenditure, excluding credit, was roughly in line with what she’d told Mobile Money (£1,108), although her income was a little lower. I can also see regular monthly payments to a doorstep loan company, a debt recovery company and a credit card company totalling £122. In addition to this, Miss M was paying £160 per month to a bailiff. Taking all this into account, Miss M’s disposable income was just under £200, without the £160 bailiff payment. She also appears to have had financial commitments other than those about which Mobile Money knew. There are regular payments to other personal accounts and a one-off payment of £1,000 in October 2017 which caused four direct debits to be returned unpaid and appears to have led to Miss M significantly underpaying her rent. So I can also see from Miss M’s statements that there were indications she was already struggling financially. She regularly spent all her money, and sometimes more, and then had to pay unplanned overdraft charges. Given Miss M was going to have limited disposable income each month, was already behind with priority bills, and the term of the loan was 18 months, I find it unlikely she would have been able to sustainable repay her loan. I acknowledge that Mobile Money says Miss M was spending money on discretionary items so cannot have been in financial difficulties, but I can’t conclude that was the case. It is clear from Miss M’s credit file, and her bank statements, that she was struggling to manage her money and so I find it was irresponsible for Mobile Money to have approved the loan. So, in summary, I can’t agree that Mobile Money made a fair lending decision, although I’ve seen no evidence that it acted unfairly or unreasonably in any other way. My final decision My decision is that I uphold this complaint. Mobile Money Limited should:

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A. Add together the total of the repayments made by Miss M towards interest, fees and charges on the loan, including payments made to a third party where applicable, but not including anything already refunded; B. Calculate 8% simple interest* on the individual payments made by Miss M which were considered as part of “A”, calculated from the date Miss M originally made the payments, to the date the complaint is settled; C. Pay Miss M the total of “A” plus “B”; D. Remove any negative information recorded on Miss M’s credit file regarding the loan, up to this point. *HM Revenue & Customs requires Mobile Money to take off tax from this interest. Mobile Money must give Miss M a certificate showing how much tax it’s taken off if she asks for one. Under the rules of the Financial Ombudsman Service, I’m required to ask Miss M to accept or reject my decision before 19 November 2020. Amanda Williams Ombudsman

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