Discretionary Commission Arrangements - Compaints and refunds
UK Credit was established in 2009, and was, until the latter part of 2021, a Homeowner Guarantor Loans company. They are part of the Norfolk Capital Group, which has over 30 years’ experience in consumer credit. UK Credit stopped offering new Guarantor Loans in December 2021; if customers have a live Guarantor loan with them this continues unchanged. UK Credit use Open Banking to help them assess the affordability of any loan.
I produced an article on UK Credit last year, and during my research I established that the volume of complaints about UK Credit’s Guarantor Loans was huge, from both borrower and Guarantor. I am also aware that UK Credit has paid out many thousands of pounds in refunds and compensation, largely due to their Guarantor Loans being unaffordable and mis-sold. It is, no doubt, a very wise business move for them to cease providing Guarantor Loans; they have switched to offering Unsecured Homeowner Loans – I’ll be keeping a close eye on how they fare with customer complaints about these loans – will they have changed their decision making process to ensure that loans are only given to those who can afford them? We can only watch and wait.
So, what are UK Credit now offering in place of Guarantor Loans? They are now offering to lend anything from £3,000 to £20,000, from repayment periods of between 3 and 10 years. They stipulate that any borrower must be a Homeowner. They are also a direct lender, rather than a broker. Interestingly enough, they claim that, unlike other lenders out there in the UK, they do not assess a potential borrower’s suitability for a loan by means of a computerised system/on credit scores, but instead claim that each application is considered by the team manually, based on its merits. I do believe that this is quite unusual, but maybe they have a huge team, or they do not have hundreds of applications to sift through daily. In any case, once an application is received, their “expert” team carry out financial and background checks, then revert to the potential borrower to conclude the process.
Who do UK Credit lend to? They state on their website that even though their loans do not use the borrower’s home as security against the cash they borrow, (as is the case with Secured Loans) to qualify for an Unsecured Loan with UK Credit, being a Homeowner is a must; by this they mean that you own your home either outright or with a mortgage, and this includes those with shared ownership or help to buy mortgages.
The thinking behind this is that any lender regards Homeowners as less of a financial risk, and more likely to keep up with the repayments, as they are more likely to be in full time/stable employment, have a reasonable credit score, and are probably able to manage their money better than their counterparts who do not own their own home. Saying that, as long as you are a Homeowner, UK Credit will consider all financial circumstances, such as evidence of payment defaults on other loans, having a County Court Judgement against you, or a poor credit score.
Consider this scenario; you own your own home, and you need to raise funds for some urgent home improvements, say a bathroom refurbishment. You haven’t got the greatest credit score due to having to having a couple of credit cards that you have only paid the minimum amount on recently, and you did once have a loan that you had to default on due to losing your job. In this scenario, you have been refused an unsecured High Street loan, but equally, you don’t want to use your home as collateral for a secured loan. This is where a lender like UK Credit can step in. It is worth mentioning that, as unsecured loans are not tied to an asset like a home or car, the risk to lenders is obviously higher, and so the lender will charge a higher rate of interest compared to a secured loan. To provide an example, I used UK Credits handy loan calculator on their website, and the results were as follows: if I wanted to borrow £5,000 over a period of 48 months, I would be looking at 48 monthly repayments of £169.85. That sounds manageable, in my opinion. But if I then look at the total repayable, I see that I would be paying a total of £8,152.80, which means that to borrow £5,000, I would be charged £3,152.80 for the privilege.
Potential borrowers need extra cash for a variety of reasons; some are for the more mundane things in life like having to replace a broken-down boiler, to the more exciting, like planning a wedding! UK Credit mention some of the areas that they can help finance on their website, and it’s easy to see how one might be tempted to take out a loan to buy something rather than save up, which is what everyone did in the olden days! It’s very easy these days to get a loan, despite all the alleged checks on a borrower’s ability to pay; need a new car, and an unsecured loan can make that dream come true, pretty much instantly! Fancy a smart conservatory or extension to make your castle bigger, then an unsecured loan can fund that for you.
UK Credit also point out that an unsecured loan from them can help with Debt Consolidation – this is a way to combine several debts into one single form of credit. For example, if you have several credit cards, and a balance transfer deal is not available to you due to poor credit, then a loan could be the answer. Equally, a borrower might have several loans with different lenders, and be seeking to reduce the number of repayments they must make each month; an unsecured loan could be used to pay off those credit cards so that you are only paying back the new loan with one repayment a month instead of several, so making it easier to maintain and keep track of outgoings. It is important to point out that a borrower must recognise that by taking out an unsecured loan from UK Credit or any similar lender, that they will be paying a high interest rate in recompense for being deemed a high risk due to the factors mentioned above.
Any lender must assess thoroughly and completely the ability of the borrower to make the repayments, without suffering hardship, or having to take out further loans etc. to stay afloat. With open banking, this should make it much easier for the lender to be able to make an informed judgement about an applicant’s ability to repay the debt; this, however, has not prevented lenders UK Credit and other lenders, from lending to customers when it was evident that they could not afford it. The Financial Ombudsman Service stated, in its annual complaints data for the 2020/21 financial year, that unaffordable lending was the most complained about issue, with 57,571 new complaints. UK Credit are still getting copious complaints about affordability with their Guarantor Loans, as well as their unsecured loans.
For example, customers have stated that from their bank account information, it was clear that they regularly gambled, with sums going to different gambling companies, consistently and over a period of several years, and yet this was not flagged as an issue, when in fact it was a huge problem, and one that should not have been ignored. Customers also allege that their obvious inability to afford a loan was overlooked, as UK Credit focussed in main on the guarantor’s financial situation, as it is they who would have to make the repayments for the borrower if they defaulted
Claims Management companies, such as Redbridge Finance, are also finding that the huge volumes of PPI complaints have now been overtaken by complaints about unaffordable loans, UK Credit being one of the companies complained about by borrowers. Guarantors themselves have been coming forward with various complaints, many of them claiming that they did not realise that they would be liable for the payments if the borrower could not make them, and also that they couldn’t afford them anyway! Another area of criticism of UK Credit (and other loan companies) is that when the borrower’s financial situation changed, the lender did not treat them fairly when they could not afford the repayments; alongside that is that if a payment failed, for whatever reason, the Guarantor was contacted too quickly.