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Credit Card Claims: Understanding Your Rights Regarding Unaffordable Lending

Many UK consumers are discovering they may have been affected by irresponsible lending practices when credit card companies approved cards or increased credit limits without proper affordability checks. Understanding your rights regarding past lending decisions can help you determine whether you might have grounds for a compensation claim.

Understanding Irresponsible Lending Practices

Irresponsible lending occurs when credit card providers fail to carry out adequate checks to ensure borrowers can sustainably afford their credit. This practice has become a significant concern for financial regulators, particularly when vulnerable consumers are pushed into unmanageable debt through repeated credit limit increases.

The Financial Conduct Authority has expressed clear concerns about credit card usage patterns. In its Credit Card market study, the FCA outlined: “…around 650,000 cardholders have been in persistent debt for at least three consecutive years and a further 750,000 cardholders have been making systematic minimum repayments for at least three consecutive years. As credit card firms note, credit cards are suited to short term borrowing and can be an expensive way to borrow large amounts over a long period. We are concerned about the volume of borrowing behaviour that does not fit this pattern.”

How Affordability Assessments Work for Credit Card Claims

Credit card companies have a responsibility to act fairly when providing credit facilities. This responsibility extends beyond the initial application – lenders must also consider whether credit limit increases could lead customers into unsustainable debt.

Key Requirements for Responsible Lending

Under FCA regulations, lenders should:

• Conduct proportionate affordability checks before approving credit
• Review financial circumstances before increasing credit limits
• Consider whether customers can repay without financial hardship
• Look for warning signs of financial difficulty

Many consumers don’t realise that even unsolicited credit limit increases require proper affordability assessments. Lenders cannot simply increase your limit without ensuring you can manage the additional borrowing.

Warning Signs of Unaffordable Credit

Understanding whether your credit may have been unaffordable involves looking at your financial situation when credit was approved or increased. Several indicators suggest lending may have been irresponsible:

Financial Warning Signs:

• Making only minimum payments for extended periods
• Using credit cards for essential expenses like food or bills
• Borrowing from one card to pay another
• Credit limits increased despite existing financial struggles

The Financial Ombudsman has upheld complaints where lenders ignored clear warning signs. In one decision, an Ombudsman stated:

“I don’t think the checks Newday carried out were proportionate or reasonable when the unsolicited offers to increase the credit limit on his Aqua card were made. Evidence was available to demonstrate his increasing indebtedness and potentially significant issues with gambling spending.” https://www.financial-ombudsman.org.uk/decision/DRN-2873482.pdf

Consumer Protection Rights for Credit Card Claims

UK consumers have strong protections against irresponsible lending practices. The Consumer Credit Act and FCA regulations require lenders to treat customers fairly and ensure credit is affordable.

What This Means for Your Potential Claim

If a lender failed to properly assess whether you could afford credit, you may be entitled to:

• Refund of interest charges on unaffordable lending
• Adjustment of your credit file if appropriate
• Compensation for any financial hardship caused

These rights apply even if you never missed a payment, as the focus is on whether the lending was affordable at the time, not whether you managed to keep up with repayments.

The Claims Process Explained

Understanding the claims process can help you make informed decisions about whether to pursue a complaint. The process generally follows these stages:

Initial Assessment

The first step involves reviewing your credit history to identify potential irresponsible lending. This includes examining when credit was provided, credit limit increases, and your financial circumstances at those times.

Formal Complaint

If there’s evidence of irresponsible lending, a formal complaint is submitted to the lender. This complaint outlines why the lending was unaffordable and requests appropriate compensation.

Lender Response

Credit card companies must investigate complaints and provide a final response. They should review their lending decisions and determine whether they met their regulatory obligations.

Financial Ombudsman Service

If you’re unhappy with the lender’s response, you have the right to refer your complaint to the Financial Ombudsman Service. The Ombudsman provides an independent review of your case at no cost to you.

Building Evidence for Unaffordable Lending

Building a strong case requires demonstrating that proper affordability checks weren’t conducted or were inadequate. Relevant evidence might include:

• Bank statements showing financial difficulty
• Credit reports indicating multiple debts
• Records of minimum payment patterns
• Documentation of credit limit increases

The stronger your evidence, the better positioned you’ll be to demonstrate that lending decisions didn’t meet regulatory standards.

Recent Regulatory Developments

The regulatory landscape continues to evolve, with increased scrutiny on credit card lending practices. Recent FCA investigations have resulted in significant compensation payouts to affected customers, particularly where lenders failed to conduct a proper credit check to assess affordability.

Under the Consumer Duty introduced in 2023, lenders face even stricter requirements to ensure good customer outcomes. This includes enhanced obligations around affordability assessments and supporting customers in financial difficulty.

Making an Informed Decision

If you believe you may have been affected by irresponsible credit card lending, it’s important to understand your options. You can:

• Review your credit history to identify potential issues
• Gather relevant documentation
• Consider whether to make a complaint directly to your lender
• Seek additional information about the claims process

Remember, you have the right to complain directly to your credit card company and to the Financial Ombudsman Service without using any third-party services. Many people successfully pursue claims independently using free resources and guidance available from consumer organisations.

Understanding Your Next Steps

Taking action on a potential irresponsible lending claim requires careful consideration. Whether you choose to pursue a claim independently or seek assistance, the key is making an informed decision based on your individual circumstances.

Financial difficulties caused by unaffordable credit can have lasting impacts. Understanding your rights helps ensure you’re equipped to address any past lending that didn’t meet regulatory standards. The process of reviewing your credit history and identifying potential issues is a valuable step in taking control of your financial situation.

Major Credit Card Lenders

We’ve seen claims involving a range of credit card providers, including:

• NewDay (Aqua, Marbles, Opus)
• Capital One
• Vanquis Bank
• Barclaycard
• MBNA
• Tesco Bank
• Santander
• Halifax / Lloyds