North Edinburgh and Castle Credit Union Limited · DRN-6244005

The complaint North Edinburgh and Castle Credit Union Limited trading as Castle Community Bank (CCB) provided Mr K with a loan in September 2024. The loan was for £4,500, with Mr K committing to make a first repayment of £197.57, followed by 34 monthly repayments of £197.57 and then a final repayment to clear the balance the following month. Mr K says the credit was unaffordable and it was provided irresponsibly. What happened The details of this complaint are well-known to both parties, so I won’t repeat them again here. The facts aren’t in dispute, so I’ll focus on giving the reasons for my 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. Having considered everything, I’m upholding Mr K’s complaint. I’ll explain my reasoning below: What’s required of lenders? Mr K’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 Mr K’s financial circumstances and the affordability of the loan for him. I’ve decided the credit wasn’t provided fairly because: • I don’t think the checks CCB did before providing the credit were enough considering what it saw from the checks it did do and what it knew about Mr K’s financial situation. • For the new loan to be affordable, CCB calculated Mr K would require a net monthly income of £2,039. But CCB verified Mr K to be earning less. £2,033 each month.

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• While I acknowledge CCB’s inclusion of a £50 buffer, due to the minimal disposable income Mr K looked likely to have left each month, I think CCB ought to have done more to understand both his income and expenditure. • I’m not saying CCB specifically had to request statements from Mr K at the time. It could’ve verified his income via other means such as requesting payslips. And it could’ve obtained figures relating to his other essential expenditure through various means such as by asking him. But now, after the event, I think looking at these statements is the best way for me to gain a picture of what I think CCB would most likely have found out or been told had it tried to establish Mr K’s actual income and expenditure. • Had CCB manually verified Mr K’s income, I’m satisfied it would’ve found he received on average £1,892 each month after tax, not the £2,033 verified by CCB’s automated check. This figure consists of his income from his employer and 50% of the benefits received into his joint account. • Mr K has confirmed he was responsible for 50% of the payments required towards rent, council tax and other essential expenditure such as utilities, food and transport. • Having looked at Mr K’s bank statements, he could be seen to have essential expenditure of around £244 towards rent and council tax, around £365 towards food and transport, around £164 towards utilities, communications and television subscriptions and around £165 towards costs relating to childcare and pet welfare. • So, I’m satisfied CCB would likely have found he had around £50 disposable income each month, after accounting for the £197.57 he was being asked to repay each month for the new loan with CCB and his commitments towards his existing credit. I don’t think this was enough to say the loan was sustainably affordable when Mr K was committing to repay it over 36 months. • CCB highlight the loan was taken out for debt consolidation, pointing to three of his existing debts at the time which it says Mr K could’ve repaid using the loan funds. • But I must consider what CCB knew at the time of the application and decide if their lending decision was fair based on this, not with conclusions made in hindsight. • Even if I was to be persuaded CCB could be certain the loan was going to repay some of Mr K’s existing credit commitments, I’ve not seen anything to suggest it asked him what he was looking to consolidate at the time, and I’m satisfied it needed to consider his existing credit commitments in full, as it did in its affordability components, when considering his affordability. • Based on the information Mr K’s provided about his circumstances at the time, I think CCB should have realised he was likely to be unable to sustainably repay what he was being lent. This means I don’t think CCB should have provided the loan to Mr K. I’ve considered whether the relationship might have been unfair under s.140A of the Consumer Credit Act 1974. However, I’m satisfied the redress I’m awarding in this case, as set out below, results in fair compensation for Mr K in the circumstances of this complaint. I’m therefore satisfied, based on what I’ve seen, that no additional award would be appropriate in this case.

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Putting things right As I don’t think CCB ought to have approved the lending, I’m upholding this complaint, and I don’t think it’s fair for CCB to be able to charge any interest or charges under the agreement. Mr K should therefore only have to pay the capital he borrowed. Anything paid towards the agreement in excess of that amount should be refunded to Mr K as an overpayment. To settle Mr K’s complaint CCB should do the following: • Refund any payments towards the agreement made in excess of £4,500 to Mr K, representing the original capital he borrowed. It should add 8% simple interest per year* from the date of each overpayment to the date of settlement. • If any capital balance remains outstanding, then CCB should arrange an affordable and suitable payment plan with Mr K. • Once Mr K has re-paid the capital, CCB should remove any adverse information recorded on his credit file regarding the agreement. If CCB has sold the debt to a third party, it should arrange to either buy back the debt from the third party or liaise with them to ensure the redress set out above is carried out. *HM Revenue & Customs requires CCB to take off tax from this interest. If Mr K asks for one, CCB must give him a certificate showing how much tax it’s taken off. My final decision My final decision is that I’m upholding this complaint and North Edinburgh and Castle Credit Union Limited trading as Castle Community Bank must put things right as I’ve set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr K to accept or reject my decision before 20 April 2026. Sean Pyke-Milne Ombudsman

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