Pepper (UK) Limited · DRN-6249777

The complaint Mr M complains that Pepper (UK) Limited trading as Engage Credit: • Lent to him irresponsibly when it gave him a secured loan. • Has applied unfair interest, fees and charges. What happened In 2007, Mr M took out a secured loan regulated by the Consumer Credit Act 1974 with Money Partners. The loan was for £23,945 over 180 months to repay existing debt. The credit agreement said the interest rate was 13.5% - which was “Variable Rate” plus a margin of 7.5%. The agreement said that the lender could change the Variable Rate at its discretion – as long as it was never more than 2% above London Interbank Offered Rate (LIBOR). The loan was later transferred to Kensington and then to Engage Credit. In 2022, the loan was restructured over a longer term. Mr M said he never should have been given the loan. He said that he already had large amounts of unsecured debt when he took the loan that he was struggling to manage. He considers that if the lender had carried out checks on his income and expenditure it would have shown that he could not afford to take on further debt. Mr M said the loan has caused him financial difficulties and he has struggled to meet his commitments. He does not consider that the interest, fees and charges applied were fair. He said that he has repaid more than £34,000 yet he still owes around £20,000. The investigator did not think the complaint should be upheld. Mr M did not accept what the investigator said. He responded to make a number of points, including: • He was already in debt when the loan was taken out, he was using debt to cover his basic living expenses and he could not meet his existing commitments. The loan was unaffordable from the outset. His income and expenditure were not assessed by the lender. • There was no new borrowing in 2022. He restructured his existing debt – the increased borrowing was made up of interest and fees. • He was not self-employed at the time of the application and he did not knowingly submit an application where he self-certified his income. And the lender still had a duty to assess affordability. • It was misleading to suggest that later events caused his financial difficulty. He was already financially overextended when the loan was taken out.

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• We had overlooked his original points, including that his income was below the amount needed to meet essential expenses and existing commitments and his monthly debt payments were more than his net income. This should have raised red flags with a responsible lender. • While he did own three buy-to-let properties the rental payments only covered the mortgage payments. 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. As the investigator said, we can consider whether there is currently an unfair relationship between Mr M and Engage , that Engage should take steps to put right, taking into account all matters relevant to the fairness of that relationship, whenever they occurred. As the current lender, Engage Credit is responsible for ensuring the relationship is currently fair, even if the unfairness may have originated in things done or not done by its predecessor. Responsible lending At the time in question the lender was not required to verify Mr M’s income. Lenders have a duty to make sure they do not lend irresponsibly. In practice, that meant it should carry out reasonable and proportionate checks to understand whether Mr M could afford to repay before approving the loan. What is reasonable and proportionate will depend on the individual circumstances. In this case Mr M was using the proceeds of the loan to repay existing debt. But there was a risk to him in securing previously unsecured debt. And the loan term was 15 years. The difficulty I have is that when the loan was taken out Mr M declared that he was self- employed and that he earned £4,100 a month gross. Mr M signed an application form setting out his income and that he was self-employed. He also signed a declaration that his gross monthly income was £4,100. He certified that information was “true and accurate”. Mr M had the opportunity to query the declared income if it was not correct. But bearing in mind his declaration of his income and what the lender knew, I can’t see there was any reason for it to doubt the information it had been given. And there was no specific obligation at that point in time for it to verify his income. The lender said it assessed affordability by looking at Mr M’s existing commitments, the new loan payment, and what Mr M had told it about his income. Based on the information it had it considered that Mr M had sufficient income to cover his outgoings and that his debt to income was acceptable. Looking at the amount borrowed, the stage of the lending relationship and what the lender knew about Mr M, I consider the level of checks were reasonable and proportionate. I can’t see there was any information that was available or ought to have been available that would have led a responsible lender to conclude that the loan wasn’t affordable or that further checks were required. Therefore, I do not consider that the relationship is currently unfair as a result of the lender’s decision to give Mr M this loan. Interest and fees

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When Mr M took out the loan it set out that he would be charged at a Variable Rate that would not be more than 2% above LIBOR plus a margin of 7.5%. Since January 2022, Engage Credit substituted the Kensington Synthetic LIBOR Rate (KSLR) for LIBOR. I understand that the lender has applied the interest rate in line with what Mr M agreed to when he took out the loan. While it later replaced LIBOR with KSLR, that reflected that LIBOR was no longer available as a reference rate for the loan. KSLR was based on Term SONIA (another benchmark rate administered by the Bank of England) plus a margin. That is in line with how the Financial Conduct Authority calculated its own synthetic LIBOR. I have not seen anything that would lead me to conclude that it was unfair for Engage Credit to replace LIBOR with KSLR. I can see why Mr M considers the interest rate is high. But it has been applied in line with the terms of the agreement he accepted – albeit that KSLR replaced LIBOR. The interest rate is not out of line with the interest rates charged on this type of loan. In view of that and as it has been calculated in line with the credit agreement that he accepted I don’t consider it has been applied unfairly. The lender has not applied any fees since 2022. Before that there were arrears fees applied, a field agent fee and fees relating to legal action on the account. The fees have been applied in line with the terms of the account. But looking at the way the account was conducted and the additional work required by the lender, I don’t consider the overall level of fees was unfair. Conclusion I understand why Mr M is unhappy with the position he is in. But I consider the lender has administered the loan fairly and in line with the terms of the agreement he accepted. The lender is not required to accept a reduced amount to settle the loan. So I don’t consider it was unfair for Engage Credit to decline Mr M’s offer of £6,000. Mr M said that after 15 years he’d paid off nothing. That reflects that a greater proportion of payments go towards interest at the start of the loan and because he has not paid all of the payments that were due on time.

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My final decision My final decision is that I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M to accept or reject my decision before 22 April 2026. Ken Rose Ombudsman

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