First Response Finance Ltd · DRN-5957634

The complaint Your text here Mrs H complains that First Response Finance Ltd (‘First Response’), irresponsibly granted her a hire purchase agreement she couldn’t afford to repay. What happened In April 2024 Mrs H acquired a used car financed by way of a hire purchase agreement from First Response. The amount of credit was £8,000. Mrs H was required to make 61 monthly repayments of £258.53. The total repayable under the agreement was £15,770.33. The agreement was terminated voluntarily after Mrs H got into difficulty with meeting the repayments. Mrs H says that First Response didn’t complete adequate affordability checks. She says if it had, it would have seen the agreement wasn’t affordable. And as a result, her financial situation got worse. First Response didn’t agree. It said that it carried out a thorough assessment at the time. Our investigator recommended the complaint be upheld. He thought First Response ought to have carried out better checks. Had it done so, it would have seen that the agreement was unlikely to be affordable for Mrs H. As First Response has said it doesn’t agree, the complaint has been passed to me for a decision. 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. We’ve explained how we handle complaints about unaffordable and irresponsible lending on our website. And I’ve used this approach to help me decide Mrs H’s complaint. Having done so, I’m upholding this complaint for broadly the same reasons as our investigator. I will explain why. First Response says it carried out a detailed evaluation before agreeing to the finance to ensure that Mrs H would be able to afford the repayments and continue to do so on a sustainable basis. This included looking at what Mrs H told them during the application process and checking her credit record. First Response also relied on statistical information to work out what Mrs H had to pay for each month for household costs, daily living costs and any credit she already owed. For Mrs H’s income, First Response asked Mrs H to provide bank statements, verifying her monthly net income as £2,573.32.

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Mrs H’s credit file showed some historical payment issues and a more recent issue with meeting payments to a utility. These were a potential point of risk concern, so First Response discussed her credit history with her to check her financial situation had improved. But I do think this is something that ought to have prompted First Response to ensure its checks were thorough. When saying this, I’m thinking about the bank statements it had obtained which would have provided a better snapshot of Mrs H’s spending commitments. Despite obtaining these, I can’t see that First Response took these into proper consideration. Mrs H was taking on a significant new financial commitment for five years. First Response needed to be assured that not only could she afford each repayment over that time, but that she was able to do so in a sustainable way. First Response had to hand information that would have given it a better indication of Mrs H’s monthly income and outgoings. As it doesn’t look to me that First Response placed enough, if any, reliance on it, I’ve considered what it all shows. And having done so, I’m in agreement that the new agreement didn’t appear likely to be affordable for Mrs H. Whereas First Response relied on a calculation based on national statistics that suggested Mrs H could afford the new agreement, her bank statements show it’s likely that she’d only be left with around £90 in disposable income each month after paying for the new agreement. I’m broad agreement with what investigator found, having reviewed her income and spending between December 2023 and March 2024, taking into consideration her household costs and living expenses, including food, petrol and travel.

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So, based on what the bank statements show as an indication of her financial circumstances at the time, Mrs H would be likely to struggle to find sufficient funds to meet the new agreement on a sustainable basis each month. That’s something I think First Response ought to have seen. First response says it was entitled to rely on statistical information in making its lending decision. In this case, however, it already had available more accurate information in the form of Mrs H’s bank statements, so the situation is different. And this information showed the new agreement was unlikely to be affordable. Had First Response given the information in the bank statements proper attention, it would have had the opportunity to reconsider granting the finance, to revise its offer or make further enquiries. Also, whilst I don’t dispute that Mrs H said she needed the car urgently and it was an essential purchase that may well require her to make some economies in household spending, the new agreement still had to be sustainable for the full five-year term of the agreement. As things stood, I don’t think it was. To summarise, I think all this demonstrates that Mrs H was unlikely to have sufficient disposable income available to her to be able to sustainably afford the monthly repayments due under the new agreement. First Response ought to have recognised that Mrs H’s financial situation was finely balanced and at risk of deterioration by taking on the new agreement on the terms that were offered. I therefore don’t consider it acted fairly by approving the finance. After the agreement started it was necessary for Mrs H to agree a repayment plan. I’m pleased to note that First Response has taken steps to support her and show forbearance – and I would urge it to continue to do so, given the impact taking on this agreement has had on her financial circumstances. I would add that Mrs H needs to keep First Response properly updated about her situation. I’ve considered whether the relationship between Mrs H and First Response might have been unfair under S.140A of the Consumer Credit Act 1974. However, I’m satisfied the redress I have directed below should be carried out for Mrs H results in fair compensation for her in the circumstances of her complaint. I’m satisfied, based on what I’ve seen, that no additional award would be appropriate in this case. Putting things right – what First Response needs to do As I don’t think First Response ought to have approved the lending, I don’t think it’s fair for it to be able to charge any interest or charges under the agreement. However, Mrs H did have use of the car for around 18 months, so I think it’s fair she pays for that use. But I’m not persuaded that the monthly repayments as required under the agreement are a fair reflection of what fair usage would be. This is because a proportion of those repayments went towards repaying interest. There isn’t an exact formula for working out what a fair usage should be. In deciding what’s fair and reasonable I’ve thought about the amount of interest charged on the agreement, Mrs H’s likely overall usage of the car and what her costs to stay mobile would likely have been if she didn’t have the car. I therefore agree that a fair amount Mrs H should pay is £131 for each month she had the use of the car. This means the redress payment starting point is that First Response can only ask her to repay a total of £2,360.

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To explain things in proper detail, to settle Mrs H’s complaint First Response should do the following: • End the agreement with nothing further to pay (my understanding is that the agreement was voluntarily terminated and the car returned in late 2024). • First Response to calculate how much Mrs H has paid in total and deduct £2,360 for fair usage. If Mrs H has paid more than the fair usage figure, First Response should refund any overpayments, adding 8% simple interest per year* from the date of payment to the date of settlement. • Remove any adverse information recorded on Mrs H’s credit file regarding the agreement. • If there are any arrears after the settlement has been calculated, First Response should arrange an affordable repayment plan. And treat Mrs H with forbearance and due consideration. *HM Revenue & Customs requires First Response to take off tax from this interest. First Response must give Mrs H a certificate showing how much tax it’s taken off if she asks for one. My final decision I uphold this complaint and direct First Response Finance Ltd to put things right in the way I’ve set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs H to accept or reject my decision before 27 April 2026. Michael Goldberg Ombudsman

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