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FCA publishes proposals on creditworthiness and affordability

The Financial Conduct Authority (“FCA”) has published proposals on amending its rules to further clarify its expectations in respect of creditworthiness and affordability (CP17/27).

In its 2015/2016 Business Plan the FCA highlighted that poor culture and practice when assessing affordability posed a risk of potential harm to consumers. Subsequently, the FCA conducted some research and found evidence of both under-compliance with current rules and examples of firms having procedures which were unnecessarily restrictive and costly. Following this research the FCA proposes to amend its rules to more clearly set out what it expects of firms when assessing creditworthiness.

The proposed amendments to the rules include:

  • More clearly distinguishing between affordability and credit risk;
  • Specifically defining “affordability risk”
  • Specifying factors that should be used when designing affordability checks that are appropriate and proportionate in relation to individual lending decisions;
  • Clarifying the appropriate role of income and expenditure information in lending decisions; and
  • Detailing the FCA’s expectations around firms’ policies and procedures which should focus on outcomes, having regard to the risks of the credit and customer characteristics.

The Consultation Paper can be read in full here: CP12/27

The deadline for responses to the consultation is 31 October 2017.