Creditworthiness in the consumer credit industry
The FCA has published its final rules and guidance on assessing credit worthiness within the consumer credit industry. These rules will come into force shortly. Firms affected by these changes should review their policies and processes making any necessary amendments prior to the implementation date.
The final rules:
• Clarify the distinction between credit risk and affordability risk and state that firms should not grant credit without conducting a creditworthiness assessment;
• Enable household or other income sources to be included in an affordability assessment where the firm can reasonably expect income to be available to repay the credit;
• Clarify that income does not just refer to earned income;
• Define non-discretionary expenditure;
• Outline the factors that should inform the scope, extent and proportionality of an affordability assessment;
• Outline how to treat business lending, allowing firms to tailor the affordability assessment to the product and customer; and
• Define the assumptions to be used when assessing affordability for credit cards and other forms of running credit.