Regulation that you can't afford to get wrong
Samuel Johnson knew a lot about words, compiling the first Dictionary of the English Language back in 1755, however, he knew very little about being poor. “Resolve not to be poor” he wrote, probably knocking back another flagon of port and tucking into a side of mutton, “whatever you have, spend less. Poverty is a great enemy to human happiness; it certainly destroys liberty, and it makes some virtues impracticable, and others extremely difficult. ”. However, many of us in the consumer credit sector know that judging what you have and spending less is not always as simple as it sounds, and that unexpected life events, or even a blip in budgeting, can leave those already in debt even more financial exposed.
The FCA published an occasional paper on the 3rd of August entitled ‘Can we predict which consumer credit users will suffer financial distress?’, which looked at how prevalent financial distress was amongst consumer credit firms, how strongly it was linked to consumer credit use and whether financial distress could be predicted. The reason this matters to you is because the regulator is placing more responsibility for the assessment of whether or not the product recommended is affordable for the consumer – and therefore less likely to lead to financial distress – on you, the person making that recommendation, and less on the person taking that advice. As with so much guidance from the FCA, there are no definitive guidelines set out, such as hard and fast formula by which to determine affordability. Instead, there are some loose outlines of circumstances which might render certain levels of repayment unsuitable; those which necessitate individuals filing for bankruptcy or increasing working hours, taking on additional jobs, or reducing spending in order to meet repayments. The regulator also states that financial distress may have wider non-financial effects, such as stress, along with other forms of mental and physical distress or social stigma and that missing repayments or persistently maintaining debt financial distress may also impede an individual’s future ability to access credit.
Whilst you will doubtlessly undertake some of these checks already – a customer’s ability to make repayments, for example – this occasional paper suggests that there may be further regulation on the horizon to move the onus of assessing affordability firmly into your court, and possibly a widening of the guidance on vulnerable clients which is already in place and can be found in the FCA’s CONC handbook.
It can be difficult to keep up with constantly evolving regulatory change such as this, particularly when you have the small matter of running a business to consider at the same time! Fortunately, working with an organisation like the SimplyBiz Group means that our specialist team will keep you up to date with what you need to do, the practicalities of how to approach it and the regularity with which it needs to happen, so that you don’t have to do it all yourself. If you want help with adapting to FCA regulation and keeping compliant on an ongoing basis, please get in touch with us urgently on 01484 443424.
David Golder
Managing Director
Consumer Credit Centre