North Edinburgh and Castle Credit Union Limited · DRN-6236646

The complaint Miss R complains North Edinburgh and Castle Credit Union Limited trading as Castle Community Bank (CCB) acted irresponsibly by failing to carry out adequate affordability checks before approving her for a loan. Miss R’s also unhappy about CCB’s handling of the matter after she complained. What happened In August 2023, Miss R took out a fixed sum loan with CCB. She borrowed £8,400, and the agreement required her to make an initial payment of £222.64 between the first 20 and 60 days of the loan being provided, followed by 58 monthly repayments of £222.64 and then a final repayment to clear the balance the following month. In October 2025, Miss R complained to CCB about their decision to lend to her, saying the loan provided was unaffordable and shouldn’t have been granted to her as they knew she had poor credit. She said if CCB had verified her income and expenses, they would’ve rejected her application. CCB didn’t uphold Miss R’s complaint, saying their understanding was that she’d applied for the loan to consolidate existing debts. CCB said Miss R’s application had been subject to full underwriting checks including a creditworthiness and affordability assessment and that, as Miss R had met their lending criteria, they were satisfied they’d acted responsibly in granting the loan to her. Miss R remained dissatisfied with CCB’s response, so asked our service to investigate. When doing so, in summary she said – • CCB’s affordability checks were inadequate, • the loan provided didn’t consolidate her debts in a sustainable way, • CCB’s affordability reasoning was flawed and ignored the reality shown in her bank account statements, • CCB had incorrectly accused her of dishonesty in their final response letter, and, • CCB sent her another customer’s final response letter, which shows poor handling of her complaint. One of our Investigators looked into things but didn’t uphold Miss R’s complaint. She thought the checks CCB carried out prior to lending were reasonable and because those checks showed the loan appeared affordable for Miss R, she didn’t think CCB had acted unfairly by deciding to lend to her. Our Investigator also said it wasn’t the role of our service to determine if data protection laws had been breached and that while she thought CCB’s final response letter could’ve been worded better, as Miss R had consolidated some debt, the statement wouldn’t have applied

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in her case. Miss R disagreed with our Investigator saying in part, at the time of taking out the loan, her financial position showed clear and sustained signs of financial difficulty, with much higher debt repayments than had been considered and a pattern of borrowing prior to taken the loan out. Our Investigator’s opinion didn’t change with her saying she’d considered what information was available to CCB at the time of the application and the information showed only a modest amount of existing lending compared to what Miss R now says she had at the time. Miss R remained unhappy, saying she was making debt repayments of around £1,000 a month at the time, she had multiple active high-cost lending agreements, she was persistently using a large overdraft and had taken out short-term loans prior to the agreement with CCB being approved. Miss R asked for an Ombudsman’s decision, so this case has been 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. Having done so, although I appreciate it’ll be a disappointment to Miss R, I’m not upholding her complaint and for much the same reasons as our Investigator. I’ll explain why. What’s required of lenders? Miss R’s loan agreement with CCB is an exempt agreement and therefore isn’t subject to all the usual consumer credit regulations such as CONC. But it is subject to the provisions set out in the Financial Conduct Authority’s (FCA’s) Credit Unions Sourcebook (CREDS). Chapter 7 of CREDS says a credit union must maintain and implement a prudent and appropriate lending policy and that this should consider the handling of applications for lending. And it says it seeks to protect the interests of credit unions’ members in respect of loans to members. Taking all this together, it’s clear the FCA recommends that a credit union’s lending policy needs to protect members’ interests. This suggests the credit union needs to check whether a loan would be sustainably affordable for an applicant as well as the creditworthiness of that applicant – as the members’ interests wouldn’t be protected if the applicant later defaulted on their loan. In summary, it’s reasonable to assume that before providing this loan CCB needed to consider Miss R’s financial circumstances and the affordability of the loan for her. Did CCB carry out enough checks? CCB carried out their usual automated checks before approving Miss R’s loan. This included a review of her credit file, automatically verifying her income using a credit reference agency (CRA), using Office for National Statistics (ONS) data to estimate her cost-of-living, and then using this information alongside her actual credit commitments to calculate her likely monthly disposable income. The credit check CCB carried out shows at the time of her application, Miss R had one unsecured loan, two credit or store cards, a mail order account, three communications accounts and a current account, which had an overdraft facility.

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CCB could see Miss R’s utilisation across her two credit or store cards was at around 90% and that she was overdrawn on her current account to within £30 of her limit, but that she hadn’t ever exceeded her limit in the six years prior. Miss R’s total indebtedness at the time was around £13,000, this equated to around 57% of her verified annual income. The credit check showed CCB that Miss R had missed payments to one credit or store card and to her mail order account 10 months prior, but that both accounts had since been well maintained, with the mail order account showing a zero outstanding balance owed. The credit check also showed CCB that Miss R hadn’t defaulted on any accounts, or that she’d been subject to any other adverse information in the past six years. CCB also saw no signs Miss R had taken out any new credit agreements within the 12 months prior to this application. Overall, I don’t think CCB saw anything within the credit check that ought to have caused them concern about her recent ability to manage credit. So, in summary, I’m satisfied there wasn’t anything CCB saw in the credit file data they obtained to suggest Miss R was in financial difficulty or in a cycle of persistent debt at the time of her application. Miss R declared her gross annual income as being £22,750. CCB then, via their automated checks, verified this amount and calculated her to be earning a net monthly income of around £1,638. Automated income verification checks generally look at the amounts going through a customer’s current account. So, whilst they don’t provide quite the same level of certainty as bank statements or payslips, they do give a reasonable level of confidence that Miss R’s income was what she’d told them it was. So, I don’t think they ought to have had reason to have completed further checks here. In addition, the net monthly income CCB arrived at is in line with what I’d expect it to be, given the gross annual salary declared. From the CRA data, CCB estimated Miss R would need to pay around £345 per month towards her existing creditors. Adding in the repayments under this loan takes this figure to around £567 per month. CCB then used statistical data to estimate what Miss R’s likely non- discretionary expenditure would be towards rent and other living costs, arriving at a figure of around £744, suggesting she would have around £327 per month in disposable income after making the repayments needed to CCB. It is a common practice for businesses to use statistical data when estimating a consumer’s essential expenditure. Here, based on the information obtained from CCB’s other checks, I can’t say they ought to have had reason to be concerned that her essential spending was likely to have been significantly different from the average. Further, Miss R’s declared purpose for taking out the loan was for debt consolidation, so while I don’t think CCB ought to have had reason to look further into her expenditure based on the disposable income they arrived at, it’s reasonable for them to have assumed the figure Miss R would’ve had available would’ve, if anything, have increased as a result of the new agreement. On balance, in the circumstances here I’m satisfied with CCB’s checks – and the results of those checks suggested Miss R would have enough disposable income after taking out the loan, so I wouldn’t have expected them to do more before deciding whether to lend to her. But this doesn’t automatically mean CCB went on to make a fair lending decision – it’s this

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I’ll go on to look at next. Did CCB make a fair lending decision? Having decided that the checks CCB carried out were enough, I now have to consider if their decision to go on and lend to Miss R was a fair one. As I’ve already said, I haven’t seen anything in the credit check information CCB obtained that I think ought to have caused them concerns about Miss R being in recent financial difficulty or her having a reliance on credit. They saw she had existing credit at the time, but this would have been expected given the purpose of consolidation for which Miss R was looking to borrow. CCB verified Miss R’s income to be in line with the gross annual salary she declared, and I’m satisfied they then went on to make reasonable estimates of her other non-discretionary expenditure which they then used alongside her actual commitments to existing credit. CCB then went on to use this information to calculate Miss R’s likely disposable income. As I’ve said, considering that Miss R’s declared intention for taking out the loan was to consolidate some of her existing debt, I think this would’ve given CCB confidence her disposable income was, if anything, more likely to increase from the figure calculated when she went on to do so. I understand Miss R feels strongly that the evidence CCB’s checks returned didn’t show the clear signs of strain and reliance on credit her actual financial position was under. But here, for the reasons I’ve already explained, I think CCB’s checks were proportionate and I can only focus on what CCB knew at the time of the application. It follows; I’m also satisfied CCB acted fairly by going on to decide the agreement was likely affordable for Miss R. Did CCB treat Miss R unfairly in any other way? While our Investigator explained it isn’t the role of our service to look into data breaches, CCB acknowledge one occurred during the process of them issuing their final response letter to her this complaint and I understand Miss R says the way CCB handled the situation forms part of her concerns about their overall complaint handling. Complaint handling in its own right isn’t a regulated activity, but I acknowledge Miss R must’ve been concerned having received a document unrelated to her. That said, I can CCB addressed the matter on the same day it was raised to them, and they confirmed to Miss R her information hadn’t been sent to anyone else within around an hour of the issue first being raised. I’ve also considered CCB’s wording within their final response letter, specifically where they suggest Miss R would’ve acted dishonestly should she not have used the funds to clear outstanding debts, given that was the declared purpose for taking out the loan. While, like our Investigator, I think CCB’s wording could’ve been better here, Miss R did use the funds to consolidate some of her existing debt, so I agree this statement wouldn’t apply in her case. The loan account statement shows Miss R maintained her repayments up until October 2025, but at the time of referring her complaint to our service, I can see she’d fallen into arrears. I’m sorry to hear this, but I can see CCB went on to place a hold on the account in January 2026.

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Overall, I’ve not seen anything to suggest CCB treated Miss R unfairly or that they should’ve acted sooner here. However, as it’s clear CCB are now aware of the financial difficulties Miss R finds herself in, I’d like to take this opportunity to remind them they should continue to treat her going forward with forbearance and due consideration. I’ve also considered whether CCB acted unfairly or unreasonably in some other way given what Miss R has complained about, including whether their relationship with Miss R might have been unfair under s.140A Consumer Credit Act 1974. However, for the reasons I’ve already given, I don’t think CCB lent irresponsibly to Miss R or otherwise treated her unfairly. I haven’t seen anything to suggest that Section 140A or anything else would, given the facts of this complaint, lead to a different outcome here. My final decision For the reasons I’ve explained above, my decision is that I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Miss R to accept or reject my decision before 21 April 2026. Sean Pyke-Milne Ombudsman

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