The Financial Ombudsman Service has set out its approach to a claim of maladministration by a borrower against a financial service provider when the borrower has been permitted to draw against an uncancelled line of credit which has been paid out.
In its latest circular (here) the FOS says that:
•the failure by the FSP to close off the former facility may amount to a breach of its implied contractual duty to exercise reasonable care and skill in performing its part of the contract
•the monies accessed by the customer from the former credit facility amount to payments made by mistake to the customer by the FSP because the funds were accessed as a consequence of the FSP’s failure to close the line of credit, rather than by any conscious decision by the FSP to renew the customer’s former credit facility
•in accordance with the law in relation to mistaken payments, the customer would be required to repay the monies drawn as a result of the FSP’s mistake unless they could show that, in good faith, they had changed their position to their detriment
•as a matter of fairness, the FSP should not be entitled to interest on the mistaken payments if the customer can repay the mistaken payment within a reasonable time frame, and
•the principles relating to maladministration should not apply because the FSP:
◦did not intend that the customer should have access to the former credit facility, and
◦has not exercised its commercial judgment, or applied its credit assessment methods to form an opinion about the customer’s ability to repay the drawings
The FOS says that a diligent and prudent FSP performing in accordance with good industry practice should have in place a process to ensure that credit facilities that come to an end are actually closed.