First Response Finance Ltd · DRN-2955977

The complaint Mrs L has complained that First Response Finance Ltd was irresponsible to have agreed car finance for her in February 2016. Mrs L also says she paid too much interest on the credit. What happened First Response agreed a hire-purchase agreement for Mrs L in February 2016 order for her to acquire a car. Under the agreement First Response would own the car until Mrs L had made all her repayments. In the meantime, until the finance was repaid, Mrs L was, in essence, paying for the use of it. The cash price of the car (as per the finance agreement) was £5,495 and Mrs L paid a deposit of £295 by way of a part-exchange. She borrowed the balance of £5,200 which, plus £4,933 interest and charges, came to £10,133. This was to be repaid by 48 instalments of £211. (I’ve rounded all figures to the nearest pound.) Mrs L had the option of voluntarily terminating the agreement at any point and returning the car. This option would limit her liability to half the total amount owing under the agreement, in other words £5,214, if she’d taken reasonable care of the car. I understand Mrs L excercised this option in August 2017 and paid £90 a month for a time to clear her balance before making a larger final payment to settle the agreement in September 2018. Mrs L then took out a second agreement with First Response but I don’t know if some of this was used to pay off the existing agreement balance. Mrs L says that First Response didn’t carry out the relevant checks or take on board her circumstances when the credit was agreed. She says she had to terminate the agreement when her income dropped and she had to pay for repairs to the car, and she feels she paid too much interest. One of our investigators looked into Mrs L’s complaint and recommended that it be upheld because they concluded First Response had lent irresponsibly. They recommended that the lender should refund everything Mrs L had paid except an amount to reflect her use of the car. First Response disagreed with this recommendation and says that it adequately assessed Mrs L’s ability to repay the credit and it gave her all the information she needed to make an informed decision about it. The complaint then came to me to review and I issued a provisional decision on the 18 June, in which I concluded that First Response ought to have carried out further checks before agreeing credit for Mrs L in February 2016. However, I also provisionally concluded that further checks wouldn’t have shown that the repayments would be unaffordable for Mrs L and so didn’t find that First Response had lent irresponsibly on this occasion. Mrs L disagreed with my provisional conclusion. She said in response that that a previous view from this Service estimated that her disposable monthly income was about £250, which didn’t leave her enough for unexpected costs once the car finance payment of

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£211 was taken into account. Mrs L also says that she had credit cards and catalogue repayments and, as the sole earner, paid money to her husband to meet some of his financial commitments. She added that First Response was aware that her husband wasn’t working and that they had no income other than what they received in tax credits and her maternity pay. Finally, Mrs L confirmed that her rent and council tax at the time came to £365 and that the car finance agreement she took out in 2018 wasn’t used in part to clear her existing agreement which was in fact paid off using a short term loan. 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. As before, I have also taken into account the law, any relevant regulatory rules and good industry practice at the time. Having done so, I remain of the view that everything didn’t go as it should have when Mrs L applied for credit but, had it done so, First Response wouldn’t have declined to lend to her. I appreciate that this will be very disappointing for Mrs L and I want to reassure her that I have carefully considered everything she’s told me in response to my provisional decision. I won’t repeat everything I said in that decision but have attached an extract from it to the end of this document and it forms part of my final decision. I’d provisionally found that Mrs L’s financial situation wasn’t as clearcut as to be able to conclude that she would have been left with insufficient money each month once she’d made her First Response payment and I’m afraid I haven’t seen anything further which changes my mind on this point. I’d said in my provisional decision that while I could see relatively large payments from her account to a catalogue account after the finance had been taken out, these didn’t appear on her bank statements prior to February 2016. I had taken into account that Mrs L was the sole earner and she had other means from state benefits. I’d considered the bills she’s mentioned, amongst others. I can see Mrs L was transferring money to her husband on an ad-hoc basis, but she was also receiving transfers into her account from him. Mrs L said “My financial stability was very strained at the time of my application and being on maternity leave applied extra pressure.” I don’t doubt that Mrs L has experienced financial difficulties – she’s provided evidence of a debt relief order issued about two years prior to the finance and, as mentioned in my provisional decision, I can see she borrowed from short term lenders in later years. Let me say again that I’m sorry to hear of her stress. However, having carefully considered everything, I can’t conclude that First Response would have declined to lend to her, even had it carried out more in depth checks before agreeing finance for her because I think it’s likely it would have concluded she had sufficient disposable income at that time to be able to sustainably meet her repayments. In summary, I am not upholding Mrs L’s complaint. This is my final decision on the matter and will be legally binding on both parties, if Mrs L chooses to accept it. My final decision For the reasons I’ve set out above and in my provision decision I am not upholding Mrs L’s complaint and so don’t require First Response Finance Ltd to take any action in this matter. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs L to accept or

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reject my decision before 1 September 2021. Michelle Boundy Ombudsman

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EXTRACT FROM PROVISIONAL DECISION What I’ve provisionally 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 also taken into account the law, any relevant regulatory rules and good industry practice at the time. Having done so I am not planning to uphold Mrs L’s complaint. I know it will be disappointing for her and I am sorry this isn’t the outcome she wished for. I hope the following clearly explains why I’ve come to this provisional conclusion. First Response needed to check that Mrs L could afford to meet her repayments sustainably before agreeing credit for her. In other words, it needed to do more than just assess the repayments were affordable, it needed to check Mrs L could repay the credit out of her usual means without having to borrow further and without experiencing financial difficulty or other adverse consequences. The regulations weren’t prescriptive about what First Response needed to do, but they did state that the checks it carried out had to be proportionate to the nature of the credit and take account of Mrs L’s circumstances. The regulations also stated that it wasn’t generally sufficient for a lender to rely solely for its assessment of income and expenditure on a statement of those matters from the consumer. The overarching requirement for First Response was that it needed to pay due regard to Mrs L’s interests and treat her fairly. With this in mind, my main considerations are:  did First Response complete reasonable and proportionate checks when assessing Mrs L’s application to satisfy itself that she would be able to make her repayments in a sustainable way? If not, what would reasonable and proportionate checks have shown?  did First Response treat Mrs L unfairly in any other way? First Response says that it carried out a detailed income and expenditure analysis when Mrs L applied for credit. I understand that the lender obtained proof of Mrs L’s income by way of a recent payslip and a HMRC tax credit letter. Mrs L was receiving maternity pay when she applied for the credit and, although she’d said that her income would increase when she returned to work, First Response says it used her reduced pay when estimating her disposable income. First Response says it asked Mrs L about her housing and council tax costs and made some general assumptions about her living costs based on national statistics. It also checked her credit file. First Response calculated that Mrs L had a disposable income of £560 a month and so concluded that the monthly repayments of £211 would be affordable for her. As I mentioned above, the rules and guidance stipulated that First Response needed to check Mrs L could meet her repayments sustainably and its checks needed to be proportionate. So I’ve thought about whether its checks were reasonable and proportionate in Mrs L’s circumstances. I can see that First Response considered that Mrs L had three dependents when making its assumptions about her living costs. First Response also knew, from Mrs L’s working tax credit correspondence from HMRC, that her husband wasn’t earning an income and hadn’t for at least a year. It could also see from her credit file that, while she didn’t seem to have many existing credit commitments (two bank accounts and a store card), her husband had four store cards and two mail order accounts.

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First Response said in response to our informal view on the matter that it was “not relevant to consider [Mr L]’s circumstances. He is not our customer, and he is not a joint signatory on the agreement. As long as we were satisfied that [Mrs L] would be able to afford the credit, the loan would be approved. Her husband’s income situation should have no bearing on this decision, when we are not entitled to complete an assessment of his circumstances. I therefore feel that to refer to this within your assessment is unfair … and not impartial.” To be clear, I’m not suggesting First Response needed to carry out an assessment of Mrs L’s husband’s circumstances but, given it knew that he wasn’t earning an income, I think it’s reasonable to consider that Mrs L might be paying something towards his financial commitments and any other expenses. Of course, her husband may have had other means at his disposal – I don’t know any more about his circumstances than the lender does. I also don’t know what assumptions the lender made about Mrs L’s living expenses as it hasn’t provided any detail about these but taking everything into account, I don’t think general assumptions were appropriate in these circumstances. I also note that First Response relied on what Mrs L had said about her rent and housing costs without taking steps to verify this information. Altogether, I think that there were indications in the information First Response had gathered that its estimation of Mrs L’s available income could potentially fall short. I think a reasonable and proportionate response would have been to look into Mrs L finances in more detail to understand whether she could afford to sustainably meet her repayments over the four years of the agreement. However, concluding that First Response ought to have done more before lending to Mrs L doesn’t automatically mean her complaint should succeed. To determine this, I’ve considered what information a proportionate check would likely have yielded. I’ve looked through the income slips, credit file and bank statements Mrs L provided (for her sole account) and considered what she’s said about the matter. Our investigator estimated that Mrs L would have had a small amount of money left each month after meeting her usual expenses including her monthly credit payment. They concluded, therefore, that the credit wasn’t affordable for Mrs L in a sustainable manner. First Response said that this estimation was misguided because not everything considered was a credit commitment or Mrs L’s sole cost to bear. I don’t wholly agree with First Response on this point. The bank statements for Mrs L’s account show that the regular household expenses such as home insurance, TV and internet costs, utility and food costs all come out of her account. I can’t see any payments for rent or council tax and Mrs L says that her husband paid these as their child benefit and working tax credits were paid into his bank account. Altogether, everything I’ve seen supports what Mrs L has said about the household expenses being her sole responsibility. Regarding whether or not everything was a credit commitment - I can see that Mrs L made regular large monthly payments to a catalogue shopping account, which doesn’t appear to be in her name (based on her current credit file) in March, April and May of 2016. However, irrespective of whether this continued, I can’t see any similar payments prior to the credit being taken out so I don’t think it’s reasonable to conclude that this particular item was an existing financial commitment First Response was likely to have found out about, had it looked further into Mrs L’s finances before lending to her. Miss L does appear to have had at least one other regular commitment in place prior to

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and after the lending. Given this, and everything else I can see on her bank statements, I’m currently of the view that First Response was likely to have found out that Miss L was spending more than it had estimated but even so, would have had sufficient to cover the repayments sustainably. And so having carefully considered everything, I don’t think further checks would have led First Response to decline credit for Miss L at that time. First Response says that Mrs L made her repayments successfully until she terminated the agreement, and then went on to take out another agreement with it when this had been repaid. It says there is no evidence to say that Mrs L wasn’t able to meet her repayments sustainably and applying for credit a second time seems inconsistent with her complaint that it had lent irresponsibly to her. It said “If Mrs [L] felt that [we] had mistreated her and had lent irresponsibly, then why apply for further finance with us?” Mrs L told this Service that her circumstances were different at the time she took out the second agreement, for example her husband was working. So I don’t agree with First Response when it says that it is inconsistent on Mrs L’s part to have complained about one of agreement and not the other. And I don’t think that successfully meeting repayments automatically means that Mrs L didn’t struggle to do so. In this case however, given I think the payments were more likely than not affordable for Mrs L and that she’s said she voluntarily terminated her hire purchase due to a drop in income and excessive repair bills on the car, I don’t think it’s reasonable to conclude that she had difficulty meeting her repayments from the outset. Mrs L says she struggled to meet her repayments and had to borrow more to pay off the balance. Mrs L’s credit file shows that she was borrowing from a doorstep lender and a short term lender around the time she settled the agreement, and that she went on to take out other hire purchase agreements and a large high cost loan. I don’t doubt what Mrs L has said about her circumstances and I am sorry to hear things have been difficult for her. It does seem to me from the available information that these difficulties mostly happened in later years and not around the time of taking out this particular agreement in early 2016. Mrs L has also complained that she paid excess interest on her agreement. I’ve looked through the account information provided by First Response and I can’t see that it charged her more than was set out in the original agreement. So I don’t think it did charge her more than it should have. I can understand if Mrs L feels that the amount of interest was unfair to begin with, but I can’t uphold her complaint on this basis alone. It seems First Response gave Mrs L enough information about the interest that would be charged under the agreement before she entered into it. My provisional decision For the reasons set out above, I am not planning to uphold Mrs L’s complaint about First Response Finance Ltd and so I am not asking it to do anything further regarding this matter. I’ll wait a month to see if either party has anything further to add before considering my decision on this complaint once more. Michelle Boundy Ombudsman

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