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ombudsman news

issue 75

January/February 2009

consumer credit complaints - some recent case studies

Most of us find credit a useful way of spreading out the cost of any extra spending, particularly at holiday times or when paying for expensive items such as furniture. And most people manage their borrowing and repay it successfully without encountering any problems with the business that provided them with credit.

Where problems do arise, however, consumers can sometimes feel that - because they owe the business money - they will be at a disadvantage if they complain about something it has done. Vulnerable consumers, and others who lack the confidence to argue their case, are particularly likely to be hesitant about challenging the actions of a financial business.

The ombudsman service does not expect the consumers who bring a complaint to us to understand what law and rules apply in their particular circumstances. Nor do we expect them to be able to argue their case in the way that would be necessary if they went to court. It does not matter if they find it difficult to put their points across in writing, as we take care to ensure we take all relevant facts into account and that nothing important is missed or ignored.

One of the most important aspects of our work in resolving consumer credit complaints is helping the businesses and consumers concerned to understand what we regard as a fair approach to resolving the dispute. Where we think the financial business has done something wrong, we explore how an appropriate settlement can be reached with the minimum of delay and formality.

As these case studies show, mediation is generally the most effective means of resolving consumer credit complaints. It has the advantage of allowing the two sides to draw a line under matters quickly - an important consideration where the consumer is experiencing financial hardship.

People who bring consumer credit complaints to us sometimes have wider debt problems, in addition to those that relate to their complaint. Where we think such consumers would benefit from specialist debt-counselling, we give them contact details for the main cost-free agencies that could help them.

The following cases include a complaint made to a lender about the quality of goods that were bought on credit. Financial businesses are sometimes unaware that we are able to deal with such matters, but we quite frequently resolve disputes of this type.

issue 75 index of case studies

  • 75/1 - vulnerable consumer's debt to mail-order catalogue spirals unfairly after being passed on to a debt-collector
  • 75/2 - debt-management company's poor administration creates further difficulties for consumers seeking help with existing debts
  • 75/3 - complaint about furniture bought with "point-of-sale" loan is referred to the lender when furniture store refuses to help
  • 75/4 - consumer complains of "harassment" by debt-collector "chasing" a credit-card debt
  • 75/5 - lender fails to remind consumer of his payment options before initial interest-free period comes to an end

75/01
vulnerable consumer's debt to mail-order catalogue spirals unfairly after being passed on to a debt-collector

Mrs L, who was in her 80s, occasionally bought clothes and other items by mail order. She found this convenient as she was not often able to get out of the house to go shopping. She lived alone and had severe arthritis.

After ordering two blouses from a mail-order catalogue, at a total cost of £26, she was disappointed to find they were a poor fit and that she would have to return them. The catalogue company allowed customers a short period in which they could return any unwanted items without charge.

Unfortunately, just two days after receiving the blouses, Mrs L was taken seriously ill. She was admitted to hospital for major surgery and it was some while before she was able to return home.

It was several weeks after that before she was well enough to start dealing with her correspondence. She then realised that she had never got round to returning the blouses. After parcelling them up with a note, apologising for the delay, she asked a neighbour to post them back to the catalogue company.

By then, however, the company had registered the £26 as an "unpaid debt" and had sold it on to a debt-collecting business. Mrs L was alarmed to receive a letter from the debt-collector saying she now owed nearly £250, because interest and charges had been added to her debt.

Mrs L contacted the debt-collector right away. She said there must have been some misunderstanding, as she had returned the blouses and did not think she now owed anything. She received a reply, still insisting that she owed nearly £250. Mrs L then got in touch with a consumer advice centre and it helped her to bring a complaint to us.

complaint resolved
We found that the debt-collector had made no attempt to check whether Mrs L had returned the blouses to the catalogue company. The debt-collector was also unable to explain to our satisfaction how a small debt had grown so quickly.

We accepted that Mrs L had not returned the blouses within the period specified by the catalogue company. However, we thought the circumstances of the case warranted some flexibility.

After we discussed the case with the debt-collector, it agreed to write-off the debt and to remove any reference to it on Mrs L's credit reference file. Mrs L and her adviser were happy to settle the complaint on that basis.

75/02
debt-management company's poor administration creates further difficulties for consumers seeking help with existing debts

Mr and Mrs J contacted a debt-management company after seeing its advertisement in a local newspaper. The company offered its customers a "debt-management plan" that would leave them "debt-free in five years".

The couple were greatly relieved when the company said it could help them. They had a number of personal debts and the total amount they were paying out each month to meet the repayments had become unmanageable.

The debt-management company contacted all the businesses that had lent the couple money. It reached agreement with these creditors for the couple to make a "reduced settlement" of their debt. In other words, the creditors agreed to accept a somewhat smaller amount to settle the debt than the actual sum outstanding. The agreed amounts would be paid over the next five years, by means of regular monthly repayments.

The couple arranged to pay the debt-management company a set amount each month. The company then made the agreed payments on their behalf to the various creditors.

Unfortunately, administrative errors by the debt-management company meant that its payments to the creditors were frequently delayed. Eventually, one of the creditors lost patience and obtained a "charging order" over Mr and Mrs J's home. This meant that the creditor was entitled to go to court and force the sale of the couple's home if the debt it was owed was not paid in full.

Mr and Mrs J got in touch with the debt-management company immediately and asked why it had allowed such a serious situation to arise. Unhappy with the response they received, they then came to us.

complaint resolved
Mr and Mrs J had paid the debt-management company an initial fee for its services, in addition to regular administrative charges. And we were satisfied that all their monthly payments to the debt-management company had been made promptly and in full, as agreed.

The company must have been well aware that any delay on its part in paying Mr and Mrs J's creditors would have a serious effect on the couple's already-fragile financial position.

We told the company it should refund the initial fee and all the administration charges that Mr and Mrs J had paid. It should also add £350 in recognition of the distress and inconvenience the couple had been caused.

Mr and Mrs J were happy to accept the amount they were offered in settlement of their complaint. Totalling just over £5000, it enabled them to repay in full the debt that had been secured on their home.

75/03
complaint about furniture bought with "point-of-sale" loan is referred to the lender when furniture store refuses to help

Mrs D bought a three-piece suite from a furniture superstore, using a "point-of-sale loan". This is a type of loan that a supplier of goods or services makes available to its customers because it has an existing agreement with a lender. The consumer applies for the loan through the supplier. The lender then pays the proceeds of the loan direct to the supplier.

Loans of this type are covered by Section 75 of the Consumer Credit Act 1974 (the "Act"). Under the Act, as long as the value of the credit transaction is no less than £100 and no more than £30,000, the credit provider is jointly liable with the supplier of the goods for any breach of contract or misrepresentation.

Within a year of buying the suite, Mrs D contacted the store to complain about it. She said the cushions on the seats and arms had flattened out to such an extent that the suite was no longer comfortable to sit on. The store refused to help, so she contacted the lender.

The lender arranged for a representative of the furniture store to inspect the suite and make a report. In this report, the store's representative said the problem was "related to Mrs D's home environment, as a short-term foster carer". The representative concluded that the complaint was unjustified. The lender therefore said it was unable to help further. Mrs D felt this was unfair and she referred her complaint to us.

complaint resolved
We told the lender we did not see how a representative of the store from which Mrs D had bought the suite was in a position to provide an independent report. We also questioned whether the particular individual concerned was suitably qualified to make an assessment of this type.

The lender then agreed to pay for a fully independent expert to inspect the suite and submit a report. This report concluded that Mrs D's complaint about the quality of the suite was justified, and it noted that Mrs D "clearly looks after all her furniture very well".

On the basis of this report, the lender offered to refund everything Mrs D had paid under the loan agreement. It said it would add £100 to reflect the inconvenience she had been caused. It would also arrange for the suite to be collected from her house and taken away.

We told Mrs D we thought the lender's offer represented a fair resolution of the dispute, in the circumstances, and she was happy to accept it.

75/04
consumer complains of "harassment" by debt-collector "chasing" a credit-card debt

Mrs B complained that she was being "harassed" by a debt-collection company, "chasing" her to make payments in order to clear a credit-card debt. She said she often received up to ten calls a day from the debt-collector, sometimes outside what she considered to be normal working hours. She told us she found the calls upsetting and that they were sometimes abusive, so she usually put the phone down as soon as she realised who was calling.

She accepted that she had missed a number of payments. However, she said she had felt justified in withholding the money because of the way the debt-collector was behaving towards her.

complaint not upheld
The debt-collector kept a computer-generated phone log, which recorded details of all the calls made from its office. From this, we established that the company had made a number of calls to Mrs B's number. However, it had never called her more than once a day - and had always contacted her within normal working hours. The staff concerned had kept proper notes of their calls to Mrs B and we were not persuaded that she had any grounds for saying the callers had been abusive.

Overall, we did not think the debt-collector had behaved unreasonably. The frequency of its calls appeared to result in large part from her refusal to discuss the situation or to offer any payment. We explained this to Mrs B when we told her we were unable to uphold her complaint.

We reminded her that she was entitled to ask the debt-collector to discuss the situation with her by letter, rather than by phone, if that was what she preferred. We also gave her details of some cost-free debt-counselling agencies.

75/05
lender fails to remind consumer of his payment options before initial interest-free period comes to an end

In November 2006 Mr M bought a leather sofa and signed up for a special deal offered by the furniture store.

Under the deal, he was not required to pay anything at all for the first year. At the end of that year he would have two options. If he paid £450 (the full cost of the sofa) he would not be charged any interest. Otherwise, he would be required to make 36 monthly payments, to which interest would be added.

Mr M later told us it had always been his intention to pay in full at the end of the first year. He had calculated that the addition of interest would make it very much more expensive to pay in instalments.

He assumed that the furniture store - or the finance company - would contact him before the first year came to an end. He would then confirm that he wished to settle his account in full.

Mr M gave the matter no more thought until he received his bank statement at the end of November 2007. This showed that a sum of money - apparently connected to his purchase of the sofa - had recently been debited from his account.

After contacting the finance company, he discovered that this sum was the first of the monthly repayments. He complained that he had not wished to pay in instalments and he offered to send a cheque for £450 right away. However, the company told him that was not acceptable. It said he had left it too late to take advantage of the interest-free payment option.

Mr M admitted that the precise date by which he needed to pay the £450 had slipped his mind. However, he said he thought the company's stance was unreasonable, as it had never contacted him to ask which payment option he had chosen.

The company insisted that it could now only accept payment by instalments. After being obliged to make a series of monthly payments that (including interest) totalled £1,125, Mr M brought his complaint to us.

complaint upheld
When resolving disputes we have reference to any relevant codes of practice, as well as to the regulatory and legal position and to what we consider fair and reasonable. In this particular case, we felt that a section of the Lending Code produced by the Finance & Leasing Association (FLA) was relevant. This says that creditors should write to borrowers before the end of an interest-free option period, to remind them of the options available under their agreement.

The finance company argued that as it was not a member of the FLA, the Lending Code was not relevant to this complaint.

We said that the FLA is the leading trade association for the UK's consumer credit sector. We therefore consider its Lending Code to reflect what the credit industry considers to be good practice generally, for firms within this sector.

Many credit providers do, as a matter of course, remind borrowers of their options before an interest-free period comes to an end. We therefore thought it reasonable for Mr M to have expected such a reminder.

We upheld the complaint and told the finance company to refund the amount it had charged Mr M in interest.

image of ombudsman news

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.