In a previous article, I discussed the way in which a principle very close to the FCA’s heart is the fair treatment of consumers. I’m sure that you will have by now noticed that in CONC – the FCA’s sourcebook offering guidance specific to consumer credit business– treating customers fairly is a constant theme. You’ll therefore be unsurprised that the regulator’s March Business Plan addressed the ways in which poor practice surrounding the assessment of creditworthiness could be harmful to consumers, however, ensuring that you have good practice in place when it comes to this issue will also serve to keep your business healthy.
Simply put, ‘creditworthiness’ is nothing more than appraising whether a customer can afford to repay a debt. Obviously nobody can predict how an individual’s personal and financial circumstances could change in the future, but affordability must be assessed by the broker or lender based on ‘sufficient information’ obtained from either the consumer themselves or, where necessary, from a database consultation.
The terminology used by the FCA is that the debt should be able to be repaid without the cause of ‘undue difficulty’ to the consumer and in a ‘sustainable manner’. More detailed information on this matter can be found in sections five and six of CONC, but you should be aware that assessing creditworthiness is part of the FCA’s policy on responsible lending and, as such, is something that they will be focussing on intently in the future. One of the major difficulties of observing these guidelines is that acting in the client’s best interests might sometimes mean refusing to act in the way a client has requested. It can be a challenging situation, and properly documenting and evidencing the steps you have followed to reach this decision may prove to be invaluable to you; both with the regulator and your customer.
AOBP’s Compliance Hub, powered by the Consumer Credit Centre, contains all the tools and guidance you need to ensure that your business adheres to the FCA’s responsible lending requirements. The SimplyBiz Group, of which the Consumer Credit Centre is a part, have many years of experience and a specialist team, dedicated to helping advisers and intermediaries through the FCA application process and into the regulatory world beyond, and that’s why AOBP have chosen to partner with us.
If you have any questions on the information in this article, or any other area of regulation or compliance support, please don’t hesitate to get in touch with the Consumer Credit Centre team on 01484 443424.
Client Proposition Director