Consumer credit supervision has settled into a consistent pattern. The FCA does not usually begin with individual cases. It begins with the lending policy, tests whether the policy meets CONC, and then samples files to see whether the firm follows its own policy. Both failure modes are common, and each produces a different remediation exposure.
The creditworthiness assessment
CONC 5 requires a firm to undertake a reasonable assessment of creditworthiness before entering into a regulated credit agreement or significantly increasing credit. That assessment has two limbs.
Credit risk. The risk to the lender that the customer will not repay.
Affordability risk. The risk to the customer that repayments will be made only with significant adverse consequences, such as failing to meet other essential expenditure or borrowing further to repay.
A firm that assesses only the first has not met the requirement, however sophisticated its scoring model.
Proportionality
The extent of the assessment may be proportionate to factors including the amount of credit, the cost, the term, the customer's circumstances and the risk of adverse consequences. Proportionality is a defence only where the firm can articulate its basis. The record should show why a lighter assessment was appropriate for the segment in question.
| Factor | Points towards lighter assessment | Points towards fuller assessment |
|---|---|---|
| Amount and cost of credit | Low value, low cost | High value, high APR |
| Term and structure | Short, self-liquidating | Long term, revolving, deferred |
| Customer indicators | Stable history, no distress markers | Prior arrears, high indebtedness, vulnerability |
| Consequence of default | Limited | Loss of essential goods, escalating charges |
Income and expenditure evidence
Where affordability depends on the customer's disposable income, reliance on declared income without verification, or on national statistical expenditure estimates alone, is a frequent finding, particularly for higher value or longer term credit.
Customers in financial difficulty
Forbearance obligations under CONC 7 require firms to treat customers in default or arrears difficulties with forbearance and due consideration. Supervisory attention concentrates on several points.
- Whether the firm identifies difficulty early, using behavioural indicators rather than waiting for missed payments.
- Whether forbearance options offered are appropriate to the customer's circumstances rather than defaulting to a single tool.
- Whether interest and charges continue to accrue in a way that makes the position worse.
- Whether arrangements are reviewed, and whether the customer is left in a long term arrangement that never resolves.
- Whether vulnerability is identified and acted upon, including communication adjustments.
Where redress exposure accumulates
Redress in consumer credit rarely arises from a single case. It arises where a policy defect applies across a book, and the exposure is the product of the defect, the volume and the period. That is why remediation scoping starts with the policy history: when did the policy change, what did each version require, and how many agreements were written under each.
Firms should maintain a version-controlled history of lending policy, scorecard changes and affordability parameters. Where that history does not exist, remediation scoping becomes an exercise in assumption, and assumptions are resolved against the firm.
Our guidance on affordability and responsible lending sets out the assessment framework, and our Consumer Duty implementation guide covers the outcomes overlay.
What the board should see
A consumer credit board pack that answers supervision should include acceptance and decline rates by segment, arrears roll rates, forbearance volumes and outcomes, complaints by root cause with trend, outcome testing results including vulnerable customer cohorts, and the status of any redress or remediation programme.
Packs that report volume and profitability without outcome data are the ones that generate information requests.
About Regulatory Counsel
Regulatory Counsel advises UK and international financial services firms on authorisation, prudential and conduct requirements, governance, financial crime and regulator engagement.
Our consumer credit work covers CONC policy review and redrafting, affordability framework design, forbearance and vulnerability frameworks, file testing programmes, redress and remediation scoping, Consumer Duty outcomes testing and support for FCA information requests.
Contact our regulatory team at info@regulatorycounsel.co.uk.
This article is provided for general information and does not constitute legal or regulatory advice. Firms should confirm the current position against FCA publications and take advice on their specific circumstances.
Frequently Asked Questions
CONC 5 requires a reasonable creditworthiness assessment covering both credit risk to the lender and affordability risk to the customer, with the extent of the assessment proportionate to the amount, cost, term and the customer’s circumstances.
No. A credit score addresses the risk of non-payment to the lender. Affordability requires an assessment of whether the customer can meet repayments without significant adverse consequences such as missing essential expenditure or borrowing further.
Early identification of difficulty, a range of forbearance options matched to the customer’s circumstances, appropriate treatment of interest and charges, periodic review of arrangements, and identification and support of vulnerable customers.
Usually from a policy defect applied consistently across a book rather than isolated case errors, which is why remediation scoping depends on a version-controlled history of lending policy and affordability parameters.
The Duty sits over CONC and shifts the test from process compliance to customer outcomes, requiring firms to evidence that customers, including vulnerable customers, receive good outcomes across products, price and value, understanding and support.