Tesco Personal Finance Limited · DRN-6302925

The complaint Mr H complains that Tesco Personal Finance Limited trading as Tesco Bank (‘Tesco’) delayed issuing a refund which led to his credit card account defaulting. Mr H wants Tesco to amend his credit file, review their processes and pay him compensation for his distress and inconvenience. What happened Tesco wrote to Mr H to tell him he was due a refund because they hadn’t sent him a required Notice of Sums in Arrears (‘NOSIA’) in 2022. The refund was applied in October 2024, after Mr H’s account had already been defaulted. Mr H said he had not been warned about the default or given the chance to avoid it. He said that if the refund had been applied earlier it would have cleared his arrears. He also said his minimum payments were higher than they should have been because his balance was incorrect. Tesco did not uphold the complaint. They said they had written to Mr H about his arrears and the risk of default, and that the refund would not have prevented the default. Our investigator reviewed the case and did not recommend upholding the complaint. He concluded the refund would not have cleared the arrears or stopped payments from falling due for payment. He also found Tesco fairly agreed a payment plan when Mr H later engaged with them, although this was after the default had been applied in August 2024. Mr H asked for an ombudsman’s decision. He said the higher minimum payments made it harder for him to manage his account. He explained that personal circumstances made it difficult for him to engage with Tesco before September 2024. He maintained that the refund would have cleared the arrears and that the default was based on inaccurate account information, making it unfair. My provisional decision I recently sent the parties my provisional decision, saying: “I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I’ve taken into account any relevant law and regulations, the regulator’s rules, guidance and standards, codes of practice and (where appropriate) what is considered to have been good industry practice at the relevant time. Having done so I don’t intend to uphold Mr H’s complaint. I’ll explain why. The Financial Ombudsman Service doesn’t have the power to make rules for financial businesses, in terms of directing that they should change their policies or procedures. That is the role of the regulator, the Financial Conduct Authority (‘FCA’). Section 3 of Tesco’s terms and conditions explains that refunds to an account don’t count

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towards minimum payments. Tesco’s letter dated 28 October 2024 also advised Mr H that although he was due a refund of £617.82 for interest and default fees, this would be allocated towards the account balance. While I acknowledge Mr H expected the refund to reduce his arrears, I am minded to say Tesco were clear this wasn’t the case. The refund was applied on 24 October 2024 and reduced Mr H’s overall balance as expected. Mr H says his refund should have been processed in 2022 when the error occurred. I’m not persuaded that’s right. Tesco said in October 2024 that they’d only recently identified the issue, and the refunded amount related to interest and default fees charged between November 2022 and October 2024. I’m not inclined to say there would have been a significant refund due in 2022. I’m minded to say the discovery of the error with the NOSIA meant that as of October 2024, Tesco were no longer entitled to seek payment of the interest and default charges that had been applied between 11 November 2022 and 28 October 2024. However, up until that point, I’m minded to say it was reasonable to seek those charges from Mr H in line with their terms and conditions. In these circumstances, I’m not minded to say Mr H’s account balance between November 2022 and October 2024 was incorrect for the purpose of calculating his minimum payments, or that it was unfair for Tesco to use that account balance to calculate Mr H’s minimum payments. I’m therefore not persuaded that the minimum payments were higher than they should have been, or that this made it harder for Mr H to manage his account. Even if I am wrong about this, I’m not minded to say the minimum payment was significantly inflated by the £617.82 that accrued between 2022 and 2024. At its highest, the amount of interest and default fees formed only a small proportion of Mr H’s overall balance. I’m therefore inclined to say that the minimum payments were driven primarily by the undisputed balance. It follows that, where those minimum payments were not made, the resulting arrears cannot be attributed solely to the interest and fees. For these reasons, I’m not minded to agree that the default arose because of the interest and default fees. The Information Commissioner’s Office expects firms to report a default when an account reaches three to six months of arrears, so I don’t think it was unreasonable for Tesco to take steps to default the account and report this the Credit Reference Agencies (‘CRAs’) when they did. Mr H says the default balance reported to the CRAs was inaccurate and undermines the validity of the default. I’m not minded to agree, based on my current findings. Namely, that the account balance was correctly calculated in August 2024, as the issue with the 2022 NOSIA wasn’t identified until October 2024; the refund would have reduced the overall balance, but not the arrears; and the arrears largely resulted from non-payment of the undisputed balance. I acknowledge Mr H says he didn’t receive the default notice or have a chance to rectify his account before the default was applied. I can see that Tesco sent Mr H regular statements detailing the arrears, issued new NOSIAs and sent a default notice. I’m minded to say Tesco met their obligations to communicate fairly with Mr H about the arrears and the upcoming default. I’m sorry to hear about the difficult personal circumstances Mr H was experiencing at the time, causing a period of avoidance and withdrawal. I appreciate that these circumstances made it challenging for him to engage with Tesco and manage his account, and I understand why Mr H feels the default was unfair as a result.

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I recognise that the FCA has issued guidance on how firms should engage with vulnerable consumers. However, I’m also mindful that it would be unreasonable to expect a firm to alter its approach where it is not aware that a customer requires additional support. Mr H says he informed Tesco of his circumstances in September 2024, and that a payment plan was agreed as a result. Unfortunately, this was too late to try and prevent the default, as it had already been applied by that point. I understand why Mr H would like Tesco to remove the default, particularly as the outstanding balance has now been repaid. However, I wouldn’t expect a firm to remove a default where it fairly and accurately reflects the history of the account. In these circumstances I’m minded to say it was fair for Tesco to mark the default as satisfied. If Mr H considers it helpful, he may contact each of the CRAs to add a notice of correction to his credit file to provide context regarding the default. This information will be visible to potential lenders when they review his credit file in the future.” Responses to my provisional decision Tesco agreed with my provisional findings, but Mr H invited me to reconsider. Mr H reiterated that Tesco had already identified he was due a refund but didn’t apply this until October 2024, and this delay negatively impacted him. Mr H said the arrears relied upon to justify the default arose only because Tesco had retained sums which were not lawfully due. He said even if the interest and charges formed a relatively small proportion of the overall balance, the arrears at default were significantly lower than the amount Tesco later accepted should not have been charged. Had the account been calculated on the correct basis, the arrears would not have existed at that time. Mr H also said his monthly minimum payments fluctuated substantially which was unpredictable. He highlighted the minimum payments rose sharply in the two months prior to default and this was despite him contacting Tesco and completing an affordability assessment. Mr H said Tesco offered support in their letters but didn’t apply any forbearance until after the default had been applied. 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. I’ve considered the further points Mr H has made, but I’m not persuaded to depart from my provisional findings. For the reasons set out below, I don’t uphold his complaint. I haven’t seen any evidence that Tesco identified the refund as being due before October 2024. So I remain of the view there wasn’t a delay in processing it. I accept the refund was higher than the level of arrears at the time the default was registered. However, for the reasons I explained in my provisional decision, I think it was fair for Tesco to apply the refund to the overall balance rather than directly to the arrears. Even if the refund had been applied earlier, it wouldn’t have cleared the arrears set out in the default notice.

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I agree the interest and fees charged between 2022 and 2024 affected the level of Mr H’s minimum payments, as they formed part of the overall balance. Mr H’s statements explain that 1% of the balance is included in the minimum payment calculation. But the total interest and fees charged over that period was £617.82, which I don’t consider to be a significant additional amount on a month-to-month basis. The statements also show that minimum payments include any interest and fees charged in that month. I accept this could have had a more significant impact on the level of the minimum payments. However, Tesco didn’t charge interest or fees in November 2023, December 2023, January 2024, or from May 2024 onwards. The statements from those periods show the minimum payments due without interest or fees applied. The statements show Mr H cleared his arrears in February 2024. But he then missed payments over the following months, including at times when no interest or fees were being charged. When payments were missed, those amounts were carried forward and added to the next month’s minimum payment. I think this explains why the minimum payment increased relatively quickly in the run up to the default. Taking everything into account, I can’t reasonably conclude that the interest and fees charged between 2022 and 2024 were the sole or main cause of the arrears and the default. Even if I remove all the interest and fees applied during that period, Mr H still missed the payments he was required to make. Although the arrears would have been lower, I still think it was fair for Tesco to register a default in August 2024. Mr H hadn’t made a payment since February 2024, and the ICO typically expects a default to be registered when an account is between three and six months in arrears. Mr H has said Tesco referred to forbearance in their letters but didn’t offer him support until after the default was registered. I think Mr H would have needed to contact Tesco to discuss support options before these could be applied to his account, as the letters explained. I haven’t seen any evidence that Mr H told Tesco about his vulnerability or asked for support before 9 September 2024. I understand this decision will be disappointing for Mr H, and I recognise how important this issue is to him. However, for the reasons I’ve explained here, and in my provisional decision, I don’t think Tesco treated him unfairly. That means I’m not going to ask Tesco to take any action on this occasion. My final decision For the reasons I have given, I don’t uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr H to accept or reject my decision before 26 May 2026. Clare Burgess-Cade Ombudsman

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