On 30 July 2018, the Financial Conduct Authority (FCA) published a policy statement (PS 18/19) containing the final rules and guidance on assessing creditworthiness for consumer credit products.
The FCA had two concerns: (a) whether firms were complying with the rules and (b) whether firms had procedures which were unnecessarily costly or restrictive to consumers. The FCA therefore published a consultation paper, CP17/27, to clarify its expectations for firms when assessing creditworthiness before entering into a regulated credit agreement and to set out its proposals.
The FCA wants to balance consumer protection with the need for consumers to access affordable credit. Following feedback after the publication of CP17/27, the FCA has published PS 18/19 containing the final rules and guidance on assessing creditworthiness for consumer credit products.
PS 18/19 clarifies:
The rules and guidance come into force on 1 November 2018.
Our ten key points are:
While the FCA maintains PS 18/19 is an evolution rather than revolution of its rules and guidance on creditworthiness and affordability, firms can find some encouragement from them. The FCA now accepts household income can be taken into account (rather than only individual income) so long as the customer can use that income to make repayments. The FCA is also giving further consideration on examples of good and poor practice. A firm's policies and procedures should, however, be approved by the firm's senior management (which will come as no surprise for those firms already subject to SMCR). Firms should also keep records of each individual assessment for audit purposes.
However, it is clear from the rules and guidance that a greater emphasis is being placed on firms to assess the customer's creditworthiness and affordability. The FCA does not say what is "reasonable and proportionate in the circumstances" meaning there will remain a number of compliant approaches. Firms will need to review the new rules and guidance and make sure they have proper processes and procedures in place by 1 November 2018.
For further information please contact Russell Kelsall (Partner), Warren Clark (Partner), Alanna Tregear (Associate) or Emily Morton (Associate).
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.