Overdrafts and Responsible Lending

KPearson

Long story short...

My 18-year-old son was suffering from acute depression and got himself in a financial hole back in 2018. He held a bank account with Nationwide, and just with the tap of a button on their app, he was able to extend his overdraft six times, eventually hitting £1600 - he was earning £1200 a month at the time.

I've complained to Nationwide about this but they're refusing to accept their lending policy was flawed. I don't know if I'm just being an overly protective (and furious) parent, but I cannot understand how any lender can grant an overdraft way in excess of an individual's income with just the tap of a button, especially when that individual is financially naive and in a vulnerable state of mind. In my son's case, he then turned to payday loans and ended up with £8.000 of debt. If Nationwide hadn't granted such a crippling overdraft, and then pulled it, maybe my son's finances wouldn't have descended to such a God-awful state.

Is there any point in raising a complaint to The Ombudsman, or should I just swallow my rage and tell my son to put it down to experience?

fwor

Unfortunately there is an element of balance here that's hard to resolve: i.e. how much is a bank allowed to intrude into each customer's personal life?

At present there is no way for a bank to be aware of a customer's state of mind/mental wellbeing unless the customer tells them. And it's very difficult for them to be certain about what a customer is actually earning - firstly because some people have wages that vary a lot from month to month, secondly some people get part of their income "cash in hand" and thirdly some people have more than one job.

If you have reason to believe that the bank were told about the issues and refused to act then there would be good reason to complain. If they were not, it's probably best to accept that they can't know everything about your sons circumstances and that all they could do was react once his debt started to build up. The fact that he went on to seek loans elsewhere suggests that there is nothing that they alone could have done to prevent his subsequent £8000 debt.

colsten

If he is 18 now, your son was a minor in 2018. As the responsible adult, did you notify Nationwide that he is financially naive and in a vulnerable state of mind? If you did not, and assuming your son didn't either, how were Nationwide to know? More importantly, however, I didn't think Nationwide give overdrafts to minors?

Don80

I understand your frustration, but you do need to try and see this from Nationwide's perspective.  He's 18, and an adult with an income.  A £1,600 overdraft isn't unreasonable.  They don't know why he's borrowing (there can be a lot of good, legitimate reasons to extend an overdraft), so the lending decision is based on affordability, this would seem to be an affordable limit for someone with that kind of income, especially if it was done in 6 smaller increments.  Overdrafts are repayable on demand, so they are entitled to pull the overdraft - maybe something generated a red flag for them, and they decided against allowing him to borrow like that? There must have been a reason.  
As @fwor says, unless they know he had mental health problems, they have no reason to turn him down.  Even if they did, depression doesn't always mean you can't manage your finances.  How much did they know, how much could they know?
You've not said why he turned to payday lenders - what was he buying (or was it to pay off the overdraft?)?  Again, if he had spoken to them they might have agreed to reduce it - for example £160 a month to clear it in 10 months. The fact that he has gone to payday lenders will impact his ability to get credit at an affordable rate for a while now.
Based on what you have said, I don't think you (or more accurately, your son) have a case.  I think you are right sating you need to swallow your rage and tell him to put it down to experience, but if he's still got the £8000 debt and it's earning interest, can he look at a regular loan (if he's even eligible now)?  It may be worth having a look at the Debt Free Wannabe boards, and see what others have done with payday lenders?
Finally, depression is awful - I have experienced it myself in my 20s.  I hope your son gets better, and is getting the support he needs.  But, lots of banks now have better awareness of mental health, so I would also suggest he lets his bank know.  For example
https://www.bankofscotland.co.uk/helpcentre/about-bank-of-scotland/in-your-community/mental-health.html
Good luck to you and your son :-)

Dr_Crypto

Put it another way round would you want to see all people taking loans having to have a medical and psychiatric evaluation to ensure they aren't suffering from some condition that they will later say should have meant they weren't creditworthy? 

Thrugelmir

KPearson said:

 In my son's case, he then turned to payday loans and ended up with £8.000 of debt. If Nationwide hadn't granted such a crippling overdraft, and then pulled it, maybe my son's finances wouldn't have descended to such a God-awful state.

Why didn't your son feel that he couldn't discuss the matter with his parents?  Financial education should start at home.