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CONC 5.3 Conduct of business in relation to creditworthiness and affordability

Creditworthiness and sustainability

CONC 5.3.1 G
  1. (1)

    In making the creditworthiness assessment or the assessment required by CONC 5.2.2R (1), a firm should take into account more than assessing the customer's ability to repay the credit.

    [Note: paragraph 4.2 of ILG]

  2. (2)

    The creditworthiness assessment and the assessment required by CONC 5.2.2R (1) should include the firm taking reasonable steps to assess the customer's ability to meet repayments under a regulated credit agreement in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences.

    [Note: paragraph 4.1 (box) and 4.2 of ILG]

  3. (3)

    A firm in making its creditworthiness assessment or the assessment required by CONC 5.2.2R (1) may take into account future increases in income or future decreases in expenditure, where there is appropriate evidence of the change and the repayments are expected to be sustainable in the light of the change.

    [Note: paragraph 4.9 of ILG]

  4. (4)

    If a firm takes income or expenditure into account in its creditworthiness assessment or its assessment required under CONC 5.2.2R (1):

    1. (a)

      the firm should take account of actual current income or expenditure and reasonably expected future income or expenditure (to the extent it is proportionate to do so) where it is reasonably foreseeable that it will differ from actual current income or expenditure over the anticipated repayment period of the agreement;

    2. (b)

      it is not generally sufficient for a firm to rely solely for its assessment of the customer's income and expenditure, on a statement of those matters made by the customer;

    3. (c)

      its assessment should be based on what the firm knows at the time of the assessment.

      [Note: paragraph 4.13, 4.14 and 4.15 of ILG]

  5. (5)

    An example of where it may be reasonable to take into account expected future income would be, in the case of loans to fund the provision of further or higher education, provided that an appropriate assessment required by this chapter is carried out and there is an appropriate exercise of forbearance in respect of initial repayments, for example, deferring or limiting the obligation to repay until the customer's income has reached a specified level. Any assumptions regarding future income should be reasonable and capable of substantiation in the individual case and the products should be designed in a way to minimise the risks to the customer.

    [Note: footnote 21 to paragraph 4.9 (box) of ILG

  6. (6)

    For the purposes of CONC “sustainable” means the repayments under the regulated credit agreement can be made by the customer:

    1. (a)

      without undue difficulties, in particular:

      1. (i)

        the customer should be able to make repayments on time, while meeting other reasonable commitments; and

      2. (ii)

        without having to borrow to meet the repayments;

    2. (b)

      over the life of the agreement, or for such an agreement which is an open-end agreement, within a reasonable period; and

    3. (c)

      out of income and savings without having to realise security or assets; and

    “unsustainable” has the opposite meaning.

    [Note: paragraphs 4.3 and 4.4 of ILG]

  7. (7)

    For a regulated credit agreement which is an open-end agreement the firm, in making its creditworthiness assessment or the assessment required by CONC 5.2.2R (1), should:

    1. (a)

      make a reasonable assessment of whether the customer is able to meet the repayments in a sustainable manner; and

    2. (b)

      make the assessment based on reasonable assumptions about the likely duration of the credit.

      [Note: paragraph 4.5 of ILG]

  8. (8)

    For a regulated credit agreement for running-account credit the firm, in making its creditworthiness assessment or the assessment required by CONC 5.2.2R (1):

    1. (a)

      should consider the customer's ability to repay the maximum amount of credit available (equivalent to the credit limit) under the agreement within a reasonable period;

    2. (b)

      may, in considering what is a reasonable period in which to repay the maximum amount of credit available, have regard to the typical time required for repayment that would apply to a fixed-sum unsecured personal loan for an amount equal to the credit limit; and

    3. (c)

      should not use the assumption of the amount necessary to make only the minimum repayment each month.

      [Note: paragraph 4.6 of ILG]

  9. (9)

    For a regulated credit agreement for running-account credit the firm should set the credit limit based on the creditworthiness assessment or the assessment required by CONC 5.2.2R (1) and taking into account the matters in CONC 5.2.3 G, and, in particular, the information it has on the customer's current disposable income taking into account any reasonably foreseeable future changes.

    [Note: paragraph 4.6 (box) of ILG]

  10. (10)

    An example of a reasonably foreseeable future change in disposable income which a firm should take into account in setting a credit limit may include where a customer is known to be, or it is reasonably foreseeable that a customer is, close to retirement and faces a significant fall in disposable income.

    [Note: paragraph 4.6 (box) of ILG]

  11. (11)

    Where a firm requests information from a customer for its creditworthiness assessment or its assessment required by CONC 5.2.2R (1) and the information provided by the customer is false and the firm has no reason to know this is the case, the firm should not contravene CONC 5.2.1 R or CONC 5.2.2 R.

    [Note: paragraph 4.10 of ILG]

  12. (12)

    Subject to the relevant legal constraints, FCA encourages the sharing between lenders of accurate data about the performance of a customer's account and the settlement of outstanding debts, as the process of making the assessments in this chapter is assisted by lenders registering such data with credit reference agencies, in a timely manner.

CONC 5.3.2 R

A firm must establish and implement clear and effective policies and procedures to make a reasonable creditworthiness assessment or a reasonable assessment required by CONC 5.2.2R (1).

[Note: paragraph 4.19 of ILG]

CONC 5.3.3 G

Under the procedures required by CONC 5.3.2 R a firm should take adequate steps, insofar as it is reasonable and practicable to do so, to ensure that information (including information supplied by the customer) on an application for credit relevant to a creditworthiness assessment or an assessment required byCONC 5.2.2R (1) is complete and correct.

[Note: paragraph 4.29 of ILG]

Unfair business practices: lenders

CONC 5.3.4 R

A firm must not base its creditworthiness assessment, or its assessment required under CONC 5.2.2R (1), primarily or solely on the value of any security provided by the customer, but this rule does not apply in relation to a regulated credit agreement under which the firm takes an article in pawn and the customer's total financial liability (including capital, interest and all other charges) is limited under the agreement to the proceeds of sale which would represent the true market value (within the meaning of section 121 of the CCA) of the article or articles pawned by the customer.1

1
CONC 5.3.5 R

A firm must not advise or encourage a customer to enter into a regulated credit agreement for an amount of credit higher than the customer initially requested if the creditworthiness assessment or the assessment required by CONC 5.2.2R (1) indicates that repayment of the higher amount would not be sustainable or the firm ought reasonably to suspect that that is the case.

[Note: paragraph 4.28 of ILG]

CONC 5.3.6 R

A firm must not complete some or all of those parts of an application for credit under a regulated credit agreement intended to be completed by the customer, without the consent of the customer, unless the customer is permitted to check the application before signing the agreement.

[Note: paragraph 4.30 of ILG]

CONC 5.3.7 R

A firm must not accept an application for credit under a regulated credit agreement where the firm knows or ought reasonably to suspect that the customer has not been truthful in completing the application in relation to information supplied by the customer relevant to the creditworthiness assessment or the assessment required by CONC 5.2.2R (1).

[Note: paragraph 4.31 of ILG]

CONC 5.3.8 G

An example of where a firm ought reasonably to suspect that the customer has not been truthful may be that the information supplied by the customer concerning income or employment status is clearly inconsistent with other available information.