Affordability and Creditworthiness

It is now four years since the FCA took over responsibility for consumer credit and it is fair to say that the credit landscape has changed, and in many ways for the better. We have seen significant impacts on the payday loan markets and new work on credit cards with lenders having to be more proactive in helping customers.

However, one point which still causes great amounts of confusion is what happens about affordability checks and creditworthiness, and what is the insurance broker's role?

The FCA has published a guide to common areas, which is available at:

https://www.fca.org.uk/firms/creditworthiness-and-affordability-common-misunderstandings

For insurance brokers who arrange or introduce to credit, this does not mean that you have to check affordability and creditworthiness. Consumer Credit rules make it very clear that this is the lender's responsibility.

The FCA publication referred to above states, “Where a credit broker is providing advice or recommendation to a borrower, it should have due regard to whether the product is affordable and whether there are factors suggesting that it may not be suitable for that customer. However, this is not an obligation to proactively assess creditworthiness or affordability. It is about not ignoring evidence suggesting that the credit is unsuitable or unaffordable.”

This would be especially relevant to those customers who have been identified as vulnerable or potentially so.

As with identifying vulnerability, it is all about watching out for signs and using your knowledge of the customer to help you make decisions.

The FCA is NOT saying you have to do income and expenditure checks on all cases, or that you must do a credit check; it’s very much down to you what steps you take. These will depend on the client history, product, size of the loan and so on, but above all the FCA want any action to be proportionate to the customer and the risk and take into account how the firm operates.

A brief guide/policy template has been prepared which explains the position in more detail and this will be available in the Templates area of the Aviva Development Zone for Compliance Club members.

About the author

Terence is the Compliance Director at RWA. He has over 35 years' experience in the Financial Services environment, covering general insurance, investments and mortgages. Before joining RWA, Terence worked for a large PLC insurance brokerage in Manchester, overseeing some 20 acquisitions. He was made a Director of RWA in 2011 and has worked with insurance broking firms of all sizes across the UK. He has a particular interest in Financial Crime and the protecting the insurance broker. Terence is also Executive Chairman of the Association of Professional Compliance Consultants (APCC), the professional body for the compliance consultancy sector.

Terence Clark

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