FCA seeks to clarify its affordability rules

As part of the FCA’s agenda for action on consumer credit, the regulator said that although most firms have relevant affordability processes, some processes show a lack of compliance by being unnecessarily costly or restrictive.

However, it said it does not believe it would be appropriate to prescribe detailed checks firms should make, or specific information they should obtain or verify for affordability tests, given that the consumer credit market is so broad and varied.

The FCA has launched a consultation in assessing creditworthiness in consumer credit and will be open to receiving comments on this until the end of October 2017. The regulator will then publish its feedback at a date yet to be confirmed.

The consultation stated: “We consider that outcomes matter more than processes, and firms can satisfy themselves on affordability in different ways.”

The FCA then went on to repeat its existing rules, including the fact that affordability checks should be appropriate and proportionate in relation to individual lending decisions.

The regulator said it will clarify, in its rules, that affordability risk may be high where the total value of the customer’s debts relative to their income is high.

It said this may be a signal that a more rigorous assessment is needed; but it is not proposing to require firms to incorporate debt-to-income ratios into their assessments.