Credit card complaints in the UK

Review and objectives

We reviewed a sample of credit card FOS decisions, upheld in the customers favour and upheld in the providers favour. The purpose of the analysis was to:

• understand weighting of customer evidence versus provider evidence
• assumptions made where evidence from either or both parties is limited
• interesting or unexpected statements or assumptions
• how all of the above might inform or influence policies and complaint handling within firms

As well as working with a broad range of firms in a consulting capacity, members of our team have held roles in-house with responsibility for complaints, FOS and FCA relationships and RCA. Whether reviewing complaints reporting as an internal or external resource, the reporting has invariably contained references to frustration at inconsistent FOS complaint handling and significant, sometimes disproportionate weighting given to customer allegations and recollections.

FOS decisions can have a significant impact on firms. They can inform or influence Claims Management activities, media coverage and consumer advocacy groups. It's vital therefore to have objective and comprehensive data on decisions and themes to assist with early identification and mitigation of emerging risks and deal proportionately with rogue decisions.

High level findings

We did not identify any indications of greater weighting placed on either customer or provider evidence. Both parties were asked to provide all relevant information, in the form of recollections and physical evidence.

The Ombudsman decisions took account of all information, applied reasonable interpretation and did not appear to be influenced by customer circumstances that were either unsubstantiated or not directly related to the issues and outcomes raised in the complaint.

The complaints generally alleged irresponsible lending and insufficient checks undertaken to determine affordability and sustainability. In some cases the complainant claimed they suffered financial vulnerability or the stress of the debt they incurred caused them mental health issues.

The Ombudsman decisions took account of all information, applied reasonable interpretation and did not appear to be influenced by customer circumstances that were either unsubstantiated or not directly related to the issues and outcomes raised in the complaint.

For example, in a number of the complaints we reviewed, the provider was either unable to provide copies of the checks undertaken or the Ombudsman did not think the checks completed were proportionate to the potential risk. However, during the course of the investigations, the Ombudsman gathered additional information and on a number of occasions, even though it felt the firm could or should have done more checks before lending, they found in favour of the firm as there was no evidence to suggest the lending was unaffordable.

An overriding sentiment across all of the complaints reviewed is that the Ombudsman sees their role as determining whether the lending was irresponsible. There was no evidence of them deferring to upholding in the customers favour where there was a lack of evidence to demonstrate responsible lending, rather they had to show that the lending was actually or very likely to be irresponsible.

What does this mean for firms?

Historically firms have felt that FOS erred on the side of the customer and the onus was on the firm to prove without doubt that they had taken the right steps and achieved the right outcome. The complaints we reviewed did not lend themselves to this approach.

The Ombudsman, in each case, reviewed the complaint with a focus on their responsibility to demonstrate that the lending was actually or very likely to be irresponsible and if they were unable to demonstrate this was the case, they did not uphold in the customers favour.

If however, firms feel that FOS still errs in favour of the customer, we recommend a few steps:

Internal reporting

• If the internal reporting states or suggests that FOS have been unreasonable, request examples and stats. For example, it is likely that we will still see rogue decisions and these should absolutely be challenged and referred to legal for review to ensure they do not set precedent.
• If reporting infers that FOS uphold rates are due to poor decision making, we recommend that Senior Management ask for this to be quantified. If for example sample cases are used to demonstrate poor FOS decisioning within internal reporting packs, request details on the volume of similar cases this specific approach applies to. Rogue decisions should ideally be dealt with on an individual basis so that the majority of time can be spent on identifying learnings and opportunities.

Complaint handling

• If information to evidence that sufficient checks were undertaken at the time, try to enable access to information and training that would support complaint handlers in reconstructing the financial situation of the customer at that time through requesting bank statements, using credit card statements etc prior to the lending decision
• Interpretation of the information is key. The FOS appear to be basing their decisions on the probability that the lending would be affordable/unaffordable. So if customers have maintained their credit card accounts well, have not missed payments, overpaid sometimes/regularly, are not continually overdrawn etc, the likelihood is the decision to lend was not inappropriate. Provide rationale for the decision beyond the specific process the firm would probably have followed at the time. ( DRN 4197126. FOS stated “Even if I were to assume that Barclaycard didn’t carry out sufficient affordability checks, I would still need to see evidence the increase was unsustainable.")

Policy

• The Ombudsman made an interesting comment in one of the complaints reviewed (DRN 3593868): “However, just because I think it carried out proportionate checks, it doesn’t automatically mean it made a fair lending decision. So, I’ve thought about what the evidence and information showed.”
• The checks have to be predominantly automated and process led. There will be exceptions that are reviewed manually or through an additional automated process but largely the lending and credit limit increase decisions will be automated and based on a set of rules, checks and algorithms. Reviewing reasons for FOS upholds may provide opportunities to enhance the automated checks.
• It is simply not possible to ensure that every credit limit increase is appropriate, however sophisticated the automated process is. This makes it all the more important to ensure that broader information on affordability and sustainability are taken into account at complaint stage, led by complaint policies.
• FOS did not disagree with the provision of a credit card and the initial credit limit for any of the complaints reviewed. In many of the credit limit cases where they found that insufficient checks were undertaken, they referenced the changes in the customers financial circumstances. Not just their indebtedness but their ability to meet their payments and not be consistently reliant on overdrafts to sustain their day to day financial needs. We are not clear on the extent to which this can be incorporated into automated checking but should be considered as part of the complaints process.

Specific findings and indicators

• FOS did not disagree with any of the decisions to provide a credit card or the initial credit limit.
• FOS determine the complaint outcome based solely on whether the information available at the time of issuing the card or increasing the credit limit would have suggested the lending was unaffordable to the customer
• Changes in customers circumstances AFTER the decision to lend does not undermine the decision to lend/increase the credit limit if it could not reasonably have been foreseen by the provider.
• Previous poor credit history should not be considered a barrier to lending if the customer has demonstrated financial stability in the period before agreeing lending or credit limit increases
• Whether the amount of credit provided was affordable is not determined by the customers income or their existing credit but by their likely ability to pay taking account of income and committed expenditure
• A customer may have significant credit commitments but if their income and expenditure and payment history suggests the minimum monthly payment (assuming the maximum credit limit is utilised) is affordable, there is no recent history of late payments and payments made on existing credit is in excess of the minimum required, FOS are likely to find in favour of the provider.
• FOS do not rely solely on the checks undertaken by the provider or evidence provided for the initial complaint by either party when making their decision. In each of the complaints reviewed, FOS have sought additional information where appropriate and possible to determine the likely affordability and evidence provided
• There were no references to vulnerability informing the Ombudsman decision
• Providers are not penalised for being unable to provide physical evidence for complaints that relate to historic decisions. The Ombudsman will instead reconstruct the likely circumstances as best it can.
• The Ombudsman did not go beyond the specific complaint allegations. (Historically there were examples of FOS undertaking a “holistic” review of a complaint where they expanded their investigation beyond the specific allegations.)

Examples

Provider should have undertaken further checks but Ombudsman undertakes additional checks and finds in providers favour

1. DRN 4197126 – The customer explained that Barclaycard provided the credit card when he was a student in October 2006, with a credit limit of £600. The first credit limit increase was seven years later in May 2013 to £1200 with three more credit limits between December 2013 and April 2015 (£2400, £3900 and £7900)

The customer alleges that Barclaycard made automatic credit card limit increases and as the minimum payments increased, so did his monthly outgoings, making it difficult to pay the minimum payment.

Neither the customer or Barclaycard were able to provide documented information from the initial application. The Ombudsman did not think this was unreasonable given the timescales involved.

The Ombudsman referenced feedback from the customer and his response to it: "Mr P says he doesn’t think I can say with certainty the issue of the card was responsible. He is right but I do have to be satisfied that it was more likely than not that the lending was irresponsible. Based on the evidence I have seen, which is very little, I’m unable to say the provision of the card to Mr P was irresponsible within the rules that applied at the time."

Based on information the Ombudsman was able to access, they determined that the customer generally maintained his account well, frequently making payments above the minimum payment. Although his credit commitments had increased and the customer claimed to have struggled to meet payments, the Ombudsman stated “I appreciate that Mr P’s statements from 2016 show he was overdrawn and also that he now has a very substantial mortgage, but I’ve seen no documentary evidence that his account was overdrawn or that he had that mortgage commitment at the time of this increase.”

The Ombudsman acknowledged that the last credit limit increase “was a very substantial increase”, neither party were able to provide any physical evidence to support their position at that time aside credit card statements. The Ombudsman referenced that the customer managed his account well and did not appear (from the evidence available) to be suffering any financial difficulty.

The Ombudsman decision was to uphold in favour of Barclaycard. The decision letter states: “Whilst it’s possible that Barclaycard didn’t carry out sufficient checks on the affordability of this increase, I don’t have sufficient evidence to show that if it had it would have realised that this increase was unsustainable .I’m aware that Mr P did get into financial difficulties later but I can’t be satisfied that it was this increase that caused those difficulties. Again, because of a lack of evidence, I can’t find that the credit limit here was increased irresponsibly.”

Key findings: The Ombudsman did not apply any greater weighting to the recollections and allegations of either party. They did not apply current regulations retrospectively. Whilst they acknowledged they were unable to say with certainty, due to the lack of information from both parties, that the initial or subsequent lending was affordable, they could not consider it unaffordable without credible supporting evidence.

2. DRN-4044790 – The customer (Mr B) stated that NewDay didn’t complete adequate affordability checks when it opened his account or for the subsequent credit limit increases. He says if it had, it would have seen that the card wasn’t affordable for him. He also says it led to him getting into further debt.

In total, the customer was given six credit limit increases. The ombudsman felt the checks NewDay undertook when issuing the card and for the first two increases were reasonable and proportionate. However, for the subsequent increases they stated “Going forwards to the next four credit limit increases, I agree with our adjudicator that on each occasion it would have been proportionate for NewDay to have found out more about Mr B’s financial circumstances, but I can’t see that happened.”

The Ombudsman sought additional information from the customer, including bank statements for the periods prior to the credit limit increases. Despite New Day being unable to provide information to evidence sufficient checks were undertaken to support the credit limit increases, the Ombudsman found in favour of New Day stating: “In summary, the evidence and information I’ve seen overall demonstrates that Mr B had enough disposable income each month to make regular, sustainable repayments towards his NewDay credit card. Had it completed proportionate checks, I therefore think it’s likely NewDay would have discovered all this too. So it didn’t act unfairly by increasing Mr B’s credit limit on each occasion.”

Key finding: Despite the Ombudsman stating that New Day should have undertaken further checks, they proactively sought additional information to assess the complaint and still found in New Day’s favour.

3. DRN: 5277791 – The customer claimed that he had other credit commitments and had New Day undertaken further checks they would have realised that it was unaffordable.

The original adjudicator decision felt the initial checks undertaken to issue the card were satisfactory but that New Day should have undertaken further checks before providing the subsequent two credit card limit increases.

The Ombudsman disagreed with the adjudicator decision. The Ombudsman stated “noting the limit increase, I think it would have been reasonable for NewDay to have confirmed Mr B’s income and asked him about his expenses.” However, having reviewed the circumstances the Ombudsman felt the customer was managing his credit commitments well and that there were no signs of financial difficulty.

So, even if New Day had undertaken further checks “I don’t think NewDay lent irresponsibly to Mr B or otherwise treated him unfairly in relation to this matter.”

Key finding: Despite the Ombudsman stating that New Day should have undertaken further checks, they reviewed additional information and felt that even if New Day had undertaken further checks, the information available would not have suggested the credit limit increases were unaffordable.

Actively supporting lending to customers with previous poor credit history

4. DRN-5187694: Customer complained that the credit card was unaffordable from the outset. They were represented by a 3rd party.

The initial credit card application was made in 2019. The customer previously had a CCJ and various defaults dating back to 2016 and 2017. The Ombudsman agreed with Vanquis’s decision to lend and stated “Just because a consumer has historically had financial difficulties it does not mean that they should never again be offered credit. If that consumer has been able to stabilise their financial position and can afford the finance, then it would be inappropriate for a provider to refuse credit simply because there had been a problem in the past. Overall, I am not persuaded that the limited recent, or more significant historical, adverse data on Mr N’s credit file was reason to prevent him from having a modest line of credit.”

The credit card was issued with a limit of £500 in June 2019. The credit limit was increased to £850 in July 2021 and to £1,450 in December 2021. The customer did take out other lines of credit during this period but the Ombudsman felt the credit provided by Vanquis was still affordable.

Due to arrears on the account, Vanquis issued a Notice of Default in April 2022. The debt was then sold to a third-party company in June 2023.

The customer appeared to struggle to meet his payments after the December 2021 increase and explained at the time that that this was because his employer hadn’t paid him for a couple of months and paid him less after that.

The Ombudsman decision recognised the reasons for the customers difficulty in meeting payments and stated: “From that it seems it was a change in circumstances that led to the difficulties Mr N had in paying, rather than the lending being irresponsible. Overall, I am not persuaded that Vanquis lent to Mr N in an irresponsible manner or that it treated him unfairly.”

Key findings: The Ombudsman was actively supportive of customers with previous poor credit history being provided with credit where they had exhibited financial stability in the period before issuing credit.

A change in customer circumstances may create financial difficulty but should not cloud previous decisions to issue credit. The provider could not be expected to foresee the change in circumstances.

Upheld in the customers favour

5. DRN-3593868: The customer claimed New Day did not undertake sufficient checks before issuing her with a credit card. Had they done so they would have identified that the lending was not affordable to her.

New Day issued the card in November 2017 with a credit limit of £450. There followed five credit limit increases, between September 2019 and September 2021, when the credit limit was increased from £1,150 to £5,900.

The adjudicator felt the initial and subsequent three credit limit increases were reasonable but the fourth and fifth increases were not affordable and should not have been provided. The Ombudsman agreed with this decision, their rationale included the following:

• For the first, second and third credit limit increase New Day should have carried out further checks. However, when the Ombudsman carried out additional checks they did not feel the customers circumstances would have changed the decision to provide the credit increases and therefore New Day did not act unfairly.
• Had proportionate checks been undertaken before issuing the fourth credit limit, New Day would have identified that the customer was struggling financially and ought not to have provided the fourth and fifth credit limit increases.
• The Ombudsman also made an interesting statement regarding the checks undertaken: “just because I think it carried out proportionate checks, it doesn’t automatically mean it made a fair lending decision.”

Key findings: Despite the Ombudsman stating additional checks should have been undertaken by New Day for all of the credit limit increases, they still found in New Day’s favour for the first three increases. They did not assume the lending was inappropriate or unaffordable solely based on the lack of evidence of checks being undertaken but instead sought additional information to establish whether each of the increases were affordable.

By the fourth increase, the customers bank statements showed a shortfall between income and committed expenditure which would/should have prevented New Day issuing a credit limit increase.

1. DRN 3741986: The customer alleges that the provider (Aesel) should have identified his gambling issues and therefore should not have increased his credit limit. The customer had a high income (does not state actual income) and was provided with an initial credit limit of £15,000 in June 2017, with increases in June 2018 to £21,000, then in October 2018 to £24,000.

FOS noted that “Because of the high credit limit, AESEL should have done thorough checks before offering the card. Mr B was on a high salary and a lot of his indebtedness was on mortgage. Mr B didn’t complain about the actual issue of the card to him. However he has complained about the credit limit increases.” The wording suggests that FOS may have thought more checks should have been undertaken before issuing the credit card. However, as the customer didn’t complain about the issue of the credit card or the initial limit, they didn’t investigate it.

The customer stated that AESEL should have identified his gambling issue. However, there is evidence that AESEL did ask about a transaction that was linked to gambling but the customer explained it away as a retail purchase. As the company the payment was made to also provides retail services there was not reason for AESEL to investigate it further. FOS also thought that had AESEL asked about other gambling transactions, the customer was unlikely to be honest about them so AESEL could not be held accountable for identifying them.

The reason FOS upheld the complaint about the credit limit increases was because the customers bank statements evidenced that he was constantly running in overdraft and it was evident that there were transfers into the account from other credit cards and regular overdraft charges. This in itself should have prevented further credit limit increases.

Key findings: The ombudsman did not think AESEL could be held responsible for failing to identify the customers gambling habit as the customer covered it up when asked about a specific instance. The ombudsman felt that the customer would likely have continued to mask/deflect any further questions about gambling.

The customer is stated as being “on a high salary”. However, his ability to meet the repayments on his credit commitments should still have been established before agreeing credit increases. The level of indebtedness in itself did not appear to be the issue, moreover the ability to meet the necessary payments and manage his income effectively should have been established and would have been identified before making credit limit increases had proportionate checks been undertaken.

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