Irresponsible Lending Claims – FCA Rules, FOS Decisions & What to Expect

Irresponsible lending occurs when a UK lender provides credit without properly assessing whether the borrower can afford to repay it sustainably. This can lead to spiralling debt, financial hardship, and stress. Under UK regulation, lenders must follow strict rules on affordability checks, and failures can give rise to irresponsible lending claims. Borrowers may seek compensation, debt reduction, or cancellation through complaints to the lender or escalation to the Financial Ombudsman Service (FOS).

FCA Rules on Responsible Lending

The Financial Conduct Authority (FCA) regulates consumer credit under the Consumer Credit Sourcebook (CONC) in its Handbook. Key requirements include:

• Lenders must undertake a creditworthiness assessment before entering a regulated credit agreement (CONC 5.2A). This involves checking if the borrower can make repayments without substantial difficulty.
• Assessments should be reasonable and proportionate, using information like income, expenditure, existing debts, credit history, and open banking data where appropriate.
• Lenders must consider sustainability—not just the likelihood of repayment, but the impact on the borrower's overall financial situation.
• For ongoing credit (e.g., credit cards, overdrafts), increases in limits or further lending require fresh checks if circumstances suggest risk.
• The rules draw from earlier Office of Fair Trading (OFT) Irresponsible Lending Guidance (2010), which the FCA incorporated after taking over consumer credit regulation in 2014. This guidance emphasises avoiding practices that harm borrowers, such as lending without adequate checks or ignoring signs of vulnerability.

Breaches can constitute irresponsible lending, potentially leading to unfair relationships under section 140A of the Consumer Credit Act 1974 or direct contraventions of FCA rules.

Common Scenarios in Irresponsible Lending Claims

Claims often arise from:

• Payday loans, credit cards, overdrafts, or personal loans granted without sufficient income/expenditure verification.
• Automatic credit limit increases without re-assessment.
• Lending to vulnerable customers (e.g., those with mental health issues or known gambling patterns) without extra scrutiny.
• Repeated lending despite missed payments or signs of financial strain.

If checks were inadequate and the lending caused harm (e.g., unaffordable repayments leading to defaults or further borrowing), borrowers may have grounds to complain.

The FOS Approach and Recent Decisions

The FOS handles escalated complaints independently and free of charge. It decides cases based on what is "fair and reasonable" in the circumstances, considering law, regulation, and good practice.

Key FOS considerations for irresponsible lending include:

• Were reasonable and proportionate affordability checks carried out?
• If not, would proper checks likely have shown the borrowing was unsustainable?
• Did the lender ignore obvious red flags (e.g., high existing debt, irregular income)?
• Was the lending fair overall?

In upheld cases, the FOS may require lenders to:

• Cancel or reduce the debt.
• Refund interest and charges.
• Correct credit file entries.
• Pay compensation for distress (in severe cases).

Examples from FOS decisions show mixed outcomes:

• Upheld where lenders failed to verify affordability despite vulnerability or patterns of overspending.
• Not upheld where checks were proportionate and the borrower appeared able to repay at the time.

Complaint volumes on unaffordable/irresponsible lending have fluctuated—high in recent years but lower in some quarters (e.g., around 10,000 new cases in Q2 2025, down from prior peaks). The FOS upholds a portion of cases (often around a third in similar affordability themes), depending on evidence.

What to Expect in the Claims Process

1. Gather evidence — Collect statements, credit agreements, bank records showing income/spending, and correspondence.
2. Complain to the lender — Write a formal complaint explaining why the lending was irresponsible and what redress you seek. Lenders must respond within 8 weeks (or sooner in some cases).
3. If unresolved — Refer to the FOS within 6 months of the lender's final response (free, online process).
4. Outcome — If upheld, redress varies: partial/full debt write-off, fee refunds, interest compensation. No guaranteed amounts—case-specific.
5. Time limits — Generally 6 years from the lending date or 3 years from awareness of the issue.

Many firms offer No Win No Fee support for complex cases, though you can handle it yourself or with free advice from charities like StepChange or Citizens Advice.

Irresponsible lending claims aim to hold lenders accountable for poor practices. If you've struggled with unaffordable debt from inadequate checks, reviewing your situation with the lender or FOS could provide relief. Always use regulated sources for advice, as outcomes depend on individual facts.