Mutual Clothing and Supply Company Limited · DRN-3200552

The complaint Mrs E, through her representative, complains that Mutual Clothing and Supply Company Limited lent to her irresponsibly. What happened Using information supplied by Mutual this brief loan table shows the approved loans. Mrs E originally said that her loans commenced in 2008 but the information from Mutual is that the first loan was in 2013. Mrs E has not provided anything to show she had loans before 2013. Loan Start date Loan amount Duration weeks Interest Weekly repayment Settlement date Total repaid 1 06/04/2013 £900 102 £495 £13.67 31/05/2017 £1,395.00 2 27/05/2017 £1,000 51 £400 £27.45 09/05/2018 £1,400.00 3 09/12/2017 £1,000 102 £550 £15.19 13/02/2019 £1,461.51 4 07/07/2018 £2,000 102 £1,100 £30.39 25/09/2019 £2,940.49 Mrs E has described the situation as follows: ‘I was encouraged to get my 1st loan by the doorstep agent as my partner at the time already had 2 loans and was unable to get another as it was December mutual did a special Christmas voucher type loan so I went along with it. It became impossible to pay off the loans so each time the agent would suggest a bigger loan to pay off the existing loan and to give myself extra spends again. The account often fell into arrears because of my inability to pay but when that happened it was always suggested to borrow more. These loans left me and my family in substantial debt constantly’ Mrs E complained in December 2020. Mutual sent to her its final response letter (FRL) in which it set out the information it said it used before approving the loans. It knew Mrs E was living with a partner, she had 3 children and was a ‘full time mum’. The 2013 application shows that her benefit income amounted to about £278 in a week and the outgoings for the household were about £280 which included, rent, council tax, food, travel, utilities, and some other financial commitments (unspecified). Mutual had obtained information about her partner’s income. The other application forms Mutual has sent show similar figures for Mrs E and that her partner’s income was noted on those forms as well. The loan applications are for Mrs E alone – they are not joint applications. Mutual has sent to us a credit search result relating to Mrs E from 28 June 2018 and likely relates to the loan 4 application.

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One of our adjudicator’s looked at the complaint and thought that the loan 1 repayment delays ought to have placed Mutual on notice that she was having trouble paying. Our adjudicator said, ‘Given that [Mrs E] struggled to make her repayments at £13.67 it was unlikely that she would be able to meet a repayment commitment of around £27, which loan two was committing her to.’ Our adjudicator also held the view that Mutual should’ve also reasonably questioned whether continuing to offer Mrs E further loans from loan 2 when she appeared to be reliant on this form of lending was unsustainable or otherwise harmful. He thought that Mrs E had been indebted to Mutual for over four years without a break, and the amounts she was borrowing increased and sometimes she had more than one loan running at the same time, increasing her repayment commitment. So, he thought that Mutual should put things right for Mrs E from loan 2. Mrs E agreed. Mutual did not and sent many submissions and gave reasons why it did not agree, all of which I have reviewed. The complaint remained unresolved and was passed to me to decide. 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. Mutual has had other decisions from this Service which detail our approach to complaints of this nature and what we think about the rules and regulations that surround the sale of this type of credit. So Mutual should be aware of our approach to these issues. And our general approach to complaints about irresponsible lending - including all the relevant rules, guidance, and good industry practice – are on our website. So, I don’t intend to go into detail about those here. But a summary is below. Mutual’s response to our adjudicator’s opinion was substantial. This included points and issues relating to Mutual as a business in the lending market, the citation of published documents, the role of home credit lending, Mutual’s view on repeat lending, and the provision of graphs to compare its repayments with other high cost short term credit lenders. So, I have read all the submissions, but I have not addressed each one as this Service has addressed many of Mutual’s points, comments and views raised in other final decisions. Where Mutual has raised points relevant to Mrs E’s circumstances or complaint I have referred to them where necessary. I consider it reasonable to describe this lending as high cost credit, as does the Financial Conduct Authority (FCA), which includes home collected credit within its identified “high cost credit” cohort. And while I note Mutual’s loans have longer terms than, for example, a payday loan, that does not make it a low risk, or inexpensive, option for a consumer. And, as such, long-term use of these products can be harmful to a consumer. The FCA has not said anything to the contrary on this point. I have considered these issues alongside everything else in making my decision. Mutual needed to take reasonable steps to ensure that it didn’t lend irresponsibly. In practice this meant that it should have carried out proportionate checks to make sure Mrs E could repay the loans in a sustainable manner.

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These checks could consider several different things, such as how much was being lent, the repayment amounts, and the consumer’s income and expenditure. In the early stages of a lending relationship, I think less thorough checks might be reasonable and proportionate. But certain factors might point to the fact that Mutual should fairly and reasonably have done more to establish that any lending was sustainable for the consumer. These factors include:  having a low income (reflecting that it could be more difficult to make any loan repayments to a given loan amount from a lower level of income);  the amounts to be repaid being especially high (reflecting that it could be more difficult to meet a higher repayment from a particular level of income);  having a large number of loans and/or having these loans over a long period of time (reflecting the risk that repeated refinancing may signal that the borrowing had become, or was becoming, unsustainable);  coming back for loans shortly after previous borrowing had been repaid (also suggestive of the borrowing becoming unsustainable). There may even come a point where the lending history and pattern of lending itself clearly demonstrates that the lending was unsustainable. And the loan payments being affordable on a strict pounds and pence calculation might be an indication a consumer could sustainably make their repayments. But it doesn’t automatically follow this is the case. The industry regulator defines sustainable as being without undue difficulties and the customer should be able to make repayments on time, while meeting other reasonable commitments; as well as without having to borrow to meet the repayments. And it follows that a lender should realise, or it ought fairly and reasonably to realise, that a borrower won’t be able to make their repayments sustainably if they’re unlikely to be able to make their repayments without borrowing further. Mutual advocates a ‘low and grow’ policy. I make no comment on any policies a lender may create or apply as that’s an internal matter for that lender and outside my remit completely. But I do say that this policy if it was in place does not seem to have been applied rigorously to the lending decisions under consideration here. When Mrs E applied to Mutual in April 2013 (loan 1), was not likely applied. Her first loan was for £900 over 102 weeks which is almost two years. It does not seem to have been a ‘low and grow’ policy application at that point. When Mrs E applied for loan 2 in May 2017, Mutual had applied a default to her first loan in July 2014 and this is evidenced by the credit search results Mutual has sent to me which – although dated June 2018 – covers the period back to 2012. My view is that this default against its own customer ought to have had a bearing on future lending decisions. Mutual has set out its approach to repeat lending (Appendix B of its document sent to us) which is the form of a table with a series of considerations Mutual says its agent would have gone through before lending. I have read Mutual’s submissions on its approach to repeat lending and I make the following points to demonstrate why I do not think that these were considered thoroughly in Mrs E’s case:  the figures submitted as income and expenditure sums for Mrs E do not alter in each of the application forms I have seen and so it seems her circumstances did not alter during the lending relationship over 5 years; and  the extended time it took for Mrs E to repay loan 1 (almost four years rather than two) costing her around £14 a week ought to have alerted the Mutual agent to consider

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that a loan for more money over a shorter period (51 weeks) and costing around £27 each week would likely be unaffordable; and  Mrs E remained a full time mother and had no income of her own - her benefits income of around £280 and the household outgoings of around £280 make it clear she was not able to afford this on her own. So, Mrs E’s partners income appeared to make that difference on affordability. And yet nothing has been submitted by Mutual to demonstrate that her partner’s financial situation was such that he could absorb that debt. Mutual has supplied details of his income but not of any credit commitments he may have had. Mrs E has explained that the reason she took the first Mutual loan was because her partner already had two and so it sounds as though it was very likely Mrs E’s partner had other debt and with Mutual. So, it may well have been that Mrs E’s partner was already burdened with debt, a relevant detail about which Mutual has shown me nothing. The significance of that is that the loans were not joint applications – they are in the name of Mrs E alone - and by taking information about Mrs E’s partner’s income but not his own financial position in the round, then its not a complete picture.  The experience Mrs E had repaying loan 1 suggests that Mrs E did have difficulties repaying it and this got to the stage where Mutual itself applied a default against Mrs E’s account. Applying a default to your own customer and then lending to that customer again does not suggest that the information it had about her was assessed in the way that the rules and regulations outline it ought to have been. Further, Mrs E’s difficulty repaying loan 1 over 4 years does not indicate to me that Mrs E’s partner was able to assist at that time. And this information Mutual would have had when Mrs E approached it for loan 2.  I refer to Mutual’s own matrix of approaches set out in its Appendix B (as referred to earlier). This background to loan 1 indicates to me that proper application of those considerations by Mutual likely ought to have led to a non-approval of loan 2. Which is why I have concluded that I don’t think the agent for Mutual did apply these. In addition to the above, Mrs E started to take loans which overlapped with the previous unpaid ones, the loan sums increased to £2,000 and the amount Mrs E was due to repay each week increased as well. And yet her income and expenditure figures were much the same. So, at the point at which loan 2 was approved, the combination of the Mutual default against her and the repayment history for loan 1, and the signs of additional overlapping of loans, plus the increases in weekly payment commitments, I have decided that Mutual ought to have realised it was more likely than not that Mrs E’s indebtedness was unsustainable. I think that Mrs E lost out because Mutual continued to provide borrowing from loan 2 onwards because:  these loans had the effect of unfairly prolonging her indebtedness by allowing her to take expensive credit over an extended period; and  the length of time over which Mrs E borrowed was likely to have had negative implications on her ability to access mainstream credit and so kept her in the market for these high-cost loans. I’m upholding the complaint about loans 2 to 4 and I’ll go on to set out what Mutual should do to put things right.

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Mutual has referred to the 2020 High Court judgement in the case of Kerrigan vs Elevate Credit International Limited. It has given its own explanations as to what it thinks the Judge meant where that Judge said that the relationship could be fair if there were a lower number of loans per year: for example, under four loans a year. Mutual has said, as it lent a lower amount than this to Mrs E, then this would indicate that it hadn’t lent unsustainably. The Judgment was about whether an unfair relationship had developed. This is a different question, with some different considerations than whether a loan or series of loans had been lent irresponsibly. There might be some overlap between whether a pattern of lending itself shows that the lending is unsustainable, and a relationship is unfair. But the Court in this judgment was considering issues related to short term high cost credit rather than home collected credit. I can see Mutual has acknowledged they are different products with different considerations. And it has repeatedly been keen to distance its products from those of short term high cost credit providers. So, I don’t think that the Judge’s conclusions about a differently structured product can be directly applied here. And in any event the number of loans is just one aspect of deciding whether a lending pattern is harmful. The loan size, duration of loans, the repayments and other factors need to be also looked at, as I’ve done above. So, whilst I have noted Mutual’s submissions on this point, it hasn’t introduced any arguments which persuade me to change the outcome about this complaint. Putting things right In deciding what redress Mutual should fairly pay in this case I’ve thought about what might have happened had it stopped lending to Mrs E from loan 2, as I’m satisfied it ought to have. Clearly there are a great many possible, and all hypothetical, answers to that question. For example, having been declined this lending Mrs E may have simply left matters there, not attempting to obtain the funds from elsewhere – particularly as a relationship existed between him and this lender which they may not have had with others. If this wasn’t a viable option, they may have looked to borrow the funds from a friend or relative – assuming that was even possible. Or, they may have decided to approach a third-party lender with the same application, or indeed a different application (i.e. for more or less borrowing). But even if they had done that, the information that would have been available to such a lender and how they would (or ought to have) treated an application which may or may not have been the same is impossible to now accurately reconstruct. From what I’ve seen in this case, I certainly don’t think I can fairly conclude there was a real and substantial chance that a new lender would have been able to lend to Mrs E in a compliant way at this time. Having thought about all these possibilities, I’m not persuaded it would be fair or reasonable to conclude that Mrs E would more likely than not have taken up any one of these options. So, it wouldn’t be fair to now reduce Mutual’s liability in this case for what I’m satisfied it has done wrong and should put right. Mutual shouldn’t have given Mrs E loans 2 to 4. My understanding is that these have been repaid and there are no outstanding balances. A) Mutual should add together the total of the repayments made by Mrs E towards interest, fees, and charges on these loans, including payments made to a third party where applicable, but not including anything already refunded; and

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B) Mutual should calculate 8% simple interest* on the individual payments made by Mrs E which were considered as part of “A”, calculated from the date she originally made the payments, to the date the complaint is settled; and C) Mutual should pay Mrs E the total of “A” plus “B”; and D) the overall pattern of Mrs E’s borrowing for loans 2 to 4 means any information recorded about them is adverse, so Mutual should remove these loans entirely from Mrs E’s credit file. *HM Revenue & Customs requires Mutual to deduct tax from this interest. It should give Mrs E a certificate showing how much tax has been deducted if she asks for one. My final decision My final decision is that I uphold Mrs E’s complaint in part and direct that Mutual Clothing and Supply Company Limited. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs E to accept or reject my decision before 8 February 2022. Rachael Williams Ombudsman

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