DRN-6293132

The complaint Mr B is complaining that First Rate Credit Union Limited (FRCU) lent to him irresponsibly by providing him with a personal loan. What happened In May 2025, Mr B applied for a loan with FRCU. They approved his application and lent him £12,000 over a five-year term. The loan required Mr B to make payments of around £253 per month for the term of the loan. Mr B complained to FRCU in November 2025, saying they shouldn’t have given him the loan as it was unaffordable. FRCU responded, saying they’d carried out appropriate checks before lending to Mr B. They said they’d reviewed Mr B’s credit file, open banking, and paylips before lending to him. They said there were no indications that the payments would be unaffordable. And they said there weren’t any indicators that Mr B might be vulnerable. FRCU noted that at the time of taking out the loan, Mr B had significant savings. And they said it wasn’t clear that he had got into financial difficulties, but if he had that might be because he hadn’t used this loan for its stated purpose of consolidating debts, and had taken on additional debt since borrowing from them. Mr B wasn’t happy with FRCU’s response, so he brought his complaint to our service and one of our investigators looked into it. Our investigator’s view was that the complaint shouldn’t be upheld – she thought FRCU had carried out enough checks and made a fair lending decision based on the results of those checks. FRCU accepted this but Mr B did not. In summary, he said he was supporting a household of three adults on his salary. He provided some details of his expenditure and said FRCU should have realised this loan would be unaffordable. And he reiterated his view that FRCU should have identified that he was vulnerable. Mr B asked for an ombudsman’s decision and the complaint came to me. 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. Having done so, and acknowledging that it’ll be very disappointing for Mr B, I’m not upholding his complaint. This is for broadly the same reasons as our investigator, but I’ll explain more below. Mr B’s loan agreement with FRCU is an exempt agreement, and therefore isn’t subject to all the usual consumer credit regulations set out in CONC. But it is subject to the provisions set out in the FCA’s Credit Unions Sourcebook (CREDS).

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Chapter 7 of CREDS says a credit union must maintain and implement a prudent and appropriate lending policy and that this should consider the handling of applications for lending. And it says it seeks to protect the interests of credit unions’ members in respect of loans to members. Taking all this together, it’s clear the FCA recommends that a credit union’s lending policy needs to protect members’ interests. This suggests the credit union needs to check whether a loan would be sustainably affordable for an applicant as well as the creditworthiness of that applicant – as the members’ interests wouldn’t be protected if the applicant later defaulted on their loan. So, in summary, it’s reasonable to assume that before providing this loan FRCU needed to consider Mr B’s financial circumstances and the affordability of the loan for him. Did FRCU carry out reasonable checks? Before lending to Mr B, FRCU: • Carried out a credit check; • Obtained Mr B’s payslips; • Obtained Mr B’s banking data using Open Banking; • Asked Mr B about his expenditure and then compared this to the information in the Open Banking; and • Assessed Mr B’s disposable income taking into account what they’d found. I’m satisfied that FRCU’s checks were thorough – they obtained evidence of Mr B’s credit history, income and expenditure and used this to carry out a full affordability assessment. Did FRCU make a fair lending decision? Having decided that FRCU carried out enough checks, I have to consider whether their decision to lend to Mr B was fair. Mr B’s credit file showed FRCU that he had total unsecured debts of around £17,000, in addition to a second charge mortgage of around £23,400. It showed he hadn’t missed any payments and often settled accounts early. It also showed that he had four credit cards with a zero balance and the balance on the one credit card he was using was well within its limit. In summary, the credit file suggested that although Mr B had a significant amount of debt, he was managing this well. Mr B also had a mortgage in addition to the debts on his credit file. It’s not clear why this wasn’t reported on the credit check FRCU carried out. But the monthly payments appear in the Open Banking data FRCU obtained, and it looks like they were included in FRCUL’s estimate of Mr B’s monthly spending. When it came to the affordability assessment, Mr B told FRCU his income was £2,400, with £1,000 of “other income”. Having reviewed his banking data, FRCU used a figure of £2,300 for Mr B’s income. Mr B’s since told us that he might have been factoring his bonus or transfers from his savings when giving the “other income” figure. Having reviewed his payslips and banking data, I’m satisfied that it was reasonable for FRCU to use £2,300 for Mr B’s total income. Mr B told FRCU his monthly expenditure was £560 for his mortgage, £145 for his council tax, £250 for travel, and £200 for “notional expenses”. FRCU revised these figures based on

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what they could see in his Open Banking and decided Mr B’s total essential spending came to around £1,800 per month – leaving him with around £500 per month in disposable income before making the payments needed for this loan. FRCU haven’t provided any detail of how they reached the figure of £1,800 per month. And Mr B says his essential spending was much higher than this. So, I reviewed the Open Banking data that FRCU had obtained. I could see that Mr B was paying around £900 per month for his two mortgages. He also had a loan with monthly payments of £230, and a credit card balance which would likely require payments of around £150 - £200 per month to pay off within a reasonable time period. But Mr B told FRCU the purpose of the loan was debt consolidation, so it would have been reasonable for them to expect that he’d pay off some of his existing debts. I can see that he did pay off his credit card – so if FRCU had asked more about the purpose of the loan it’s likely he’d have told them that’s what he would do. In addition to his credit commitments, the Open Banking data shows Mr B was spending around £220 per month on bills and other commitments. On top of that the repayments needed under this agreement were about £250 per month. Deducting all these from his income would have left around £700 per month before taking into account transport, groceries, or other essentials. I wouldn’t have expected FRCU to carry out a detailed analysis of Mr B’s transactions to determine exactly how much he was spending on these – they just needed to determine whether this was a reasonable amount for day to day living costs. Mr B had told FRCU that his transport costs were around £250. And he’d told them he didn’t have any dependents. On that basis, I’m satisfied it was reasonable for FRCU to decide this loan would be affordable for Mr B. Whilst I appreciate he’s now saying neither of those things are true, I can’t say FRCU should have discovered this. The requirement is that they carry out reasonable checks before lending. With a loan of this size to someone who didn’t appear to be in any financial difficulties, I’m satisfied that the checks that FRCU carried out were reasonable and the information they gathered suggested the loan repayments would be sustainably affordable for Mr B. Did FRCU treat Mr B unfairly in any other way? I’ve also considered whether the relationship might have been unfair under s.140A of the Consumer Credit Act 1974. However, for the reasons I’ve already given, I don’t think FRCU lent irresponsibly to Mr B or otherwise treated him unfairly in relation to this matter. I haven’t seen anything to suggest that Section 140A would, given the facts of this complaint, lead to a different outcome here. I do appreciate that Mr B has found himself in financial difficulties, and I realise how challenging this must be. But I can’t say that was FRCU’s fault. In summary, he applied to FRCU for a loan to consolidate existing debts, his credit file suggested he was managing his existing debts well, and the information Mr B gave them about his income and expenditure suggested the loan would be readily affordable. When FRCU found out more about his income and essential spending they were still able to satisfy themselves the repayments would be affordable. In the circumstances it wouldn’t be reasonable to say they should have asked any more questions or carried out a more detailed analysis. In addition, in the months after FRCU approved this loan, Mr B experienced a lengthy period of reduced income due to sick leave, and took out additional loans with other lenders. Neither of these were reasonably foreseeable for FRCU.

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Finally, Mr B has complained that FRCU should have realised he was vulnerable. He said he’s dyslexic and has some difficulties with processing information. Whilst I can understand why this might have caused him some challenges with completing his application to FRCU, I can’t say that FRCU should have realised Mr B was vulnerable. He didn’t disclose this information to them, and I can’t say it should have come to light through a reasonable check of his financial circumstances. My final decision As I’ve explained above, I’m not upholding Mr B’s complaint about First Rate Credit Union Limited. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr B to accept or reject my decision before 25 May 2026. Clare King Ombudsman

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