North Edinburgh and Castle Credit Union Limited · DRN-6196561

The complaint Mr N complains North Edinburgh and Castle Credit Union Limited trading as Castle Community Bank (CCB) failed to carry out sufficient checks before approving him for credit. What happened In June 2025, Mr N took out a fixed sum loan with CCB. He borrowed £15,000, and the agreement required him to make an initial payment of £489.55 between the first 20 and 60 days of the loan being provided, followed by 58 monthly repayments of £489.55 and then a final repayment to clear the balance the following month. In September 2025, Mr N complained to CCB about their decision to lend to him, saying the loan provided was unaffordable and shouldn’t have been granted to him. CCB didn’t uphold Mr N’s complaint, saying his application had been subject to full underwriting checks including a creditworthiness and affordability assessment and that, as Mr N had met their lending criteria, they were satisfied they’d acted responsibly in granting the loan to him. Mr N remained dissatisfied with CCB’s response, so asked our service to investigate. When doing so, he said CCB had approved the loan within a few clicks without any underwriting checks, bank statements or payslips. He also said they’d failed to ask for any details of the debt he was looking to consolidate and didn’t ask him any information about his income or expenditure. Mr N said he had to take out pay advances, payday loans and further borrowing to allow him to meet the repayments of the loan and to cover his living expenses and he doesn’t believe the loan should’ve been approved given his existing debt at the time. One of our Investigators looked into things but didn’t uphold Mr N’s complaint. He thought the checks CCB carried out prior to lending were reasonable and because those checks showed the loan appeared affordable for Mr N, he didn’t think CCB had acted unfairly by deciding to lend to him. Mr N disagreed with our Investigator, remaining of the opinion the loan wasn’t affordable. He said he’s left with only £100 a month disposable income after accounting for all of his expenditure, and without accounting for any unexpected costs. Mr N said he didn’t consider maxed out credit cards, multiple payday loans, wage advances and constantly being overdrawn as signs he was managing his finances well. He added that even after paying off other debt with the proceeds of the loan, he is still in a precarious financial position. Our Investigator’s opinion didn’t change. He said because he thought CCB’s checks were reasonable, he needed to consider the information returned from those checks, which didn’t include them conducting a review of bank statements. He also said while he appreciated that Mr N has highlighted his use of payday type lending, there was no evidence of this

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borrowing in the checks CCB completed at the time. Mr N remained of the opinion it was clear to see the financial difficulties he was in, so he asked for an Ombudsman’s decision. 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 Mr N, I’m not upholding his complaint and for much the same reasons as our Investigator. I’ll explain why. What’s required of lenders? Mr N’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 N’s financial circumstances and the affordability of the loan for him. Did CCB carry out enough checks? CCB carried out their usual automated checks before approving Mr N’s loan. This included a review of his credit file, automatically verifying his income using a credit reference agency (CRA), using Office for National Statistics (ONS) data to estimate his cost-of-living, and then using this information alongside his actual commitments towards rent and his existing credit to calculate his likely monthly disposable income. The credit check CCB carried out shows at the time of his application, Mr N had a mix of loans, credit cards and store cards, mail order or revolving credit accounts, communications accounts and a higher purchase agreement (HPA). CCB could also see Mr N held two current accounts, one of which had an overdraft facility. Mr N’s utilisation across his credit cards and store cards was at around 84% at the time. CCB could also see the HPA had around two months remaining prior to it being settled. CCB could see Mr N’s total indebtedness at the time was around £23,500, this equating to around 47% of his declared annual income. Mr N could be seen to have had two searches conducted on his credit history in the three months prior to the application and CCB saw he’d taken out one new credit agreement within the same period. The credit check also showed CCB no signs Mr N had missed or been late making payments to any of his credit, that he’d not defaulted on any accounts, or that he been subject to any other adverse information which I think ought to have caused CCB concern

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about his 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 Mr N was in financial difficulty at the time of his application. Mr N declared his gross annual income as being £50,000. CCB then, via their automated checks, verified this amount and calculated him to be earning a net monthly income of around £3,293. 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 Mr N’s income was what he’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. CCB estimated from the credit file data Mr N would need to pay around £1,326 per month towards his existing creditors. Adding in the repayments under this loan takes this figure to around £1,815 per month. CCB added Mr N’s declared rent commitment of £500 and then used statistical data to estimate what his other likely non-discretionary expenditure would be, arriving at a figure of around £690. This suggested he would have around £288 per month in disposable income after making the repayments needed to CCB, or around £138 after CCB’s inclusion of a £150 buffer. 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 his essential spending was likely to have been significantly different from the average. Further, Mr N has explained his 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 his expenditure based on the disposable income they arrived at, it’s reasonable for them to have assumed the figure Mr N would have had available would’ve increased as a result of the new agreement being taken out and at least some of his existing credit being paid off. On balance, in the circumstances here I’m satisfied with CCB’s checks – and the results of those checks suggested Mr N 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 him. But this doesn’t automatically mean CCB went on to make a fair lending decision – it’s this 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 Mr N 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 Mr N being in financial difficulties. They saw he had existing credit at the time, but the extend of which Mr N appears to have been reliant on short-term pay day type credit wasn’t shown in the CRA data CCB were provided. So I can’t expect them to have known about it prior to lending to him. CCB verified Mr N’s income to be in line with the gross annual salary he declared, and I’m satisfied they then went on to make reasonable estimates of his other non-discretionary

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expenditure which they then used alongside his actual commitments to his existing credit and rent. CCB then went on to use this information to calculate Mr N’s likely disposable income. As I’ve said, considering that Mr N’s intention for taking out the loan being to consolidate some of his existing debt, I think this would’ve given CCB confidence his disposable income was if anything, more likely to increase from the figure calculated when he went on to do so. I understand Mr N feels strongly that the evidence within his bank account statements shows the true financial strain he was under and the extent of the pay day loan activity on his account, alongside his credit history showing the number of hard searches for credit made against his credit history in the six months prior to the application. But, for the reasons I’ve already explained, based on the results of the checks CCB did do, I don’t think they needed to do more checks such as obtaining statements. And the CRA data didn’t report the level of searches or pay day lending Mr N now shows to CCB at the time. Here, 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 Mr F. Did CCB treat Mr N unfairly in any other way? While Mr N has explained he relied on taking out other credit in order to meet his repayments, his repayment history to the loan, up until the point of his complaint appeared perfect, with all repayments being made on time. So, I’ve not seen anything to suggest that CCB treated Mr N unfairly in any other way. However, Mr N has now brought his circumstances to CCB’s attention, providing evidence of his reliance on credit. As our Investigator said, and as CCB offered within their final response letter, Mr N should reach out to CCB to discuss the support they can offer him. I’ve also considered whether CCB acted unfairly or unreasonably in some other way given what Mr N has complained about, including whether their relationship with Mr N 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 Mr N or otherwise treated him 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 Mr N to accept or reject my decision before 15 April 2026. Sean Pyke-Milne Ombudsman

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