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Affordability & Creditworthiness Policy & Procedures

1) Policy Statement

The company are committed to ensuring that all lending and payment services, including credit agreements, repayment plans, hire purchase and debt management plans are not only fair, but also consider and assess the customers’ affordability and creditworthiness prior to making any agreement. We have assessment controls and tools in place to meet the regulatory standards and rules for affordability and suitability and set out our measures and objectives in this policy.

This policy also provides guidance and rules for our staff, to ensure that they treat customers fairly and only offer products and services that are affordable and suitable. Our customer approach is to ensure that our products and services are fair, clear and transparent and that we always put the customers interests first, ensuring affordability and suitability at all times.

2) Purpose

The purpose of this policy is to provide clear guidance to our staff and customers regarding how we assess affordability and creditworthiness for our products and services. This includes any increase, adjustment or re-lending that may occur throughout the repayment period.

In accordance with the CONC 5 regulations and the FCA expectations for assessing affordability and creditworthiness, we use predefined procedures, credit searches and calculators to assess each customer based on their own merits and circumstances and combine these with the product/service being offered to ensure an individually tailored assessment. We understand that one size does not fit all where lending and payment plans are concerned but will always ensure that a customer is not caused any undue financial stress or burden by taking a product or service offered by the company.

The company provides staff training on the objectives and aims set out in this policy as well as the FCA requirements on affordability and creditworthiness, which ensures that any customer applying for credit or setting up a repayment plan will always be dealt with by a trained, compliant and knowledgeable staff member. Our staff are dedicated to offering products and services that are fair, clear and transparent as well as ensuring that the customer’s creditworthiness and affordability.

3) Scope

The policy relates to all staff (meaning permanent, fixed term, and temporary staff, any third-party representatives or sub-contractors, agency workers, volunteers, interns and agents engaged with the company in the UK or overseas) within the organisation and has been created to ensure that staff deal with the area that this policy relates to in accordance with legal, regulatory, contractual and business expectations and requirements.

4) Affordability & Creditworthiness

Under CONC 5 of the Consumer Credit Sourcebook, the FCA have set guidance and regulations for assessing the affordability and creditworthiness of customers who are being considered for credit or setting up some form of payment plan. The FCA advise that the assessment of affordability and creditworthiness are connected and together should form the basis of assessment outcomes.

The company uses credit scores and searches to assess a customer’s creditworthiness and to consider their current financial circumstances in relation to other creditors, defaults, CCJ’s, bankruptcies and/or IVA’s. However, even in instances of a customer returning a satisfactory credit report, we still assess affordability to ensure compliance with the FCA regulations and to ensure that the customer can make repayments as they fall due (or within a reasonable period in the case of open-end credit such as a credit card or overdraft).

We always treat each customer as an individual and assess all financial aspects and circumstances when making an agreement decision. We understand that some customers may have a good level of creditworthiness but be unable to meet monthly repayments and likewise, others may be assessed as being not creditworthy, but have a large disposable income. For this reason, the company uses several assessment methods and tools when making affordability, suitability and creditworthiness decisions.

5) Objectives

The company has laid out the below objectives which we intend to meet in relation to assessing the affordability and creditworthiness of each customer. These objectives comply with the CONC 5 requirements as well as our own aims on treating customers fairly.

The company ensure that: –

  • We will carry out an affordability assessment using an assessment calculator, up-to-date income and expenditure information and evidence of any income and expenses, prior to any contractual agreement or repayment plan being agreed
  • We will carry out a credit check and/or use a credit reference agency search on all applicable customers (with their consent), prior to any contractual agreement being made
  • We will only provide a loan or credit agreement to customers who are able to afford repayments and who have an acceptable level of creditworthiness
  • We will only set up repayment plans where a disposable income has been defined using our affordability assessment tools and measures
  • When carrying out an affordability assessment, we will ensure that any repayment amounts are taken into consideration alongside the customers’ existing financial commitment and that the additional repayment does not put a financial strain on the customer
  • We will determine if a customers’ credit status is adequate to allow for additional lending/credit, by considering: –
    • the type of credit
    • the amount of the credit
    • the cost of the credit
    • the financial position of the customer at the time of seeking the credit
    • the customer’s credit history, including any indications that the customer is experiencing or has experienced financial difficulties
    • the customer’s existing financial commitments including any repayments due in respect of other credit agreements, consumer hire agreements, regulated mortgage contracts, payments for rent, council tax, electricity, gas, telecommunications, water and other major outgoings known to the firm
    • any future financial commitments of the customer
    • any future changes in circumstances which could be reasonably expected to have a significant financial adverse impact on the customer
    • the vulnerability of the customer, in particular where the firm understands the customer has some form of mental capacity limitation or vulnerability (or reasonably suspects this owing to the customer meeting one or more of the criteria set out in our Vulnerable Customer Policy)
  • We use a universal approach when assessing affordability and creditworthiness to ensure a complete picture and treat each case and customer as an individual, assessed on their own merits
  • All affordability assessments and credit searches are recorded and retained on file for [5 years]
  • We will repeat the affordability assessment (and credit search where applicable) when: –
    • increasing/re-evaluating lending
    • annually on repayments and debt management plans
    • where there has been a material change in the customer’s circumstances (either notified or noticed)

6) Procedures

[If you have existing, additional or different assessment procedures, please insert these below. It is important that the procedures, controls and measures you have documented here are the ones followed and evidenced by your company.]

6.1 Assessment Criteria

The company provides products and services for [lending, credit, hire purchase, mortgages, insurance, leasing, deb management, debt collection *delete/insert as applicable] and as such, we are obligated to ensure that customers can afford the products/services that we offer and that they have a satisfactory level of creditworthiness to better protect them from financial distress.

We ensure that a broad range of assessment tools and measures are used when assessing affordability and creditworthiness and take into consideration the customers individual circumstances and merits. Not all methods are used for all customers (e.g. a low credit score would be expected in a person applying for a debt management plan), however assessing affordability is a mandatory business objective to ensure that payments can be made on time, in full and without causing current or future financial distress or difficulty to the customer.

Creditworthiness and affordability assessment measures and tools used by the company vary dependant on the customer, circumstances and the product/service being offered.

The measures we use include (but are not limited to): –

  • Income & Expenditure Forms
  • Affordability Assessment Calculator (disposable income provision)
  • Information and/or evidence gathered from the customer
  • Credit scores
  • Credit Reference Agency data
  • Previous customer interactions/records
  • [Add/Delete]

6.2 Affordability Assessments

We use a pre-defined [Delete as applicable *Affordability assessment calculator/income & expenditure form] to assess the customer’s income, expenditure and other creditor commitments and use this information alongside evidence of income (wage slips, benefits etc) and evidence of expenses (rent/mortgage agreements, council tax bills, utility bills etc), to obtain a monthly disposable income figure.

Our Affordability Assessment enables staff to calculate the figures from a pre-defined calculation table, reducing errors and providing better support to the staff member carrying out the assessment. The disposable income figure is also generated instantly, providing reduced waiting time for the assessment to be made.

We then use this figure alongside other assessment outcomes to ascertain if the customer can afford any repayments associated with the product/service being offered. All affordability assessments are recorded on the customers application/account and are retained for a period of 5 years.

6.3 Credit Checks

We use [Experian/Equifax/CallCredit] to assess the customers’ current credit status and score and obtain information about any outstanding County Court Judgments, Bankruptcy Orders or IVA’s. We also assess their current financial obligations and any defaults on their account. Credit scores and searches are used in conjunction with income and expenditure information and affordability assessments to provide an overall picture of the customers’ ability to repay a credit or make regular repayments on a plan.

Credit checks are only carried out with the customers consent and are retained on the customers application/account for 5 years after the date the search is conducted. The company confirms that where any such search has been conducted and the customer is not yet ready to purchase the product, we will leave no evidence of the search on the credit file and where able to, we will use the “quotation search facility”.

6.4 Income and Expenditure

Our Affordability Assessment calculator includes income and expenditure details and is used to compile a picture of the customer’s disposable income and level of affordability. On occasion, we also carry out a full income and expenditure form completion, such as for debt collection or debt management purposes.

This form is more detailed than our affordability assessment and gives a whole picture of all items in detail. This level of detail is used in cases where a customer must set up some form of repayment plan, such as with creditors or to prevent court action and so a detailed income and expenditure form is used to assess the maximum amount of repayment the customer can make without cause undue financial distress.

6.5 Business Lending

Where any customer is borrowing for the purposes of a business, we also utilise documents and information about and from the business to make our lending assessment. These include (but are not limited to): –

  • Business Plan and Strategy
  • Accounts, Assets and Financial History
  • Future Financial Obligations
  • Director/Proprietor Searches
  • Credit Check & Companies House Search (where applicable)
  • [Add/delete where applicable]

6.6 Guarantors

Where any form of lending or repayment plan requires there to be a guarantor on the customer’s account, the company understands our commitment and duty of care to inform the guarantor of any consequences of failed payments and provide them with terms, conditions and agreements as applicable to the product/service. Where a guarantor is required, we also assess their level of affordability and creditworthiness proportionate to the customer’s creditworthiness outcome and the product/service applied for.

Any credit check carried out on a guarantor is only done with their written consent. We refer to a ‘guarantor’ as any individual other than the borrower who provides a guarantee or an indemnity (or both).

Assessments on guarantors are carried out for the same reasons as those of the customer: –

  • To ensure affordability
  • Mitigate financial stress or hardship
  • Ascertain level of creditworthiness
  • Assess ability to make repayments in the even the customer defaults

Our guarantor assessments are less detailed than our direct customer assessments; however, they have still been developed to meet the assessment criteria for any potential obligations which might fall on the guarantor. We understand that our obligations to assess the affordability and creditworthiness of the customer is never removed or reduced by having a guarantor on the account.

7) Ongoing Monitoring

We assess all accounts and credit agreements on an annual basis to identify if any customer has developed financial difficulties or had any material changes during their contract period. This ongoing monitoring includes: –

  • Contacting any customer who has missed or delayed one or more payments and completing an affordability assessment and new credit check (where applicable)
  • Flagging accounts where a customer has made one or more late payment (even if all payments are up to date) and monitoring that account monthly
  • Where more than 3 payments are made after the due date, the customer is contacted to discuss the reasons for late payment and the due date is either changed (i.e. if the customer’s pay day has been moved) or an affordability re-assessment is completed

Staff are provided with quarterly training sessions which includes: –

  • Financial Difficulties
  • Assessing Affordability
  • Vulnerable Customers
  • Dealing with Arrears Accounts
  • Responsible Lending
  • Treating Customers Fairly
  • FCA Regulatory Requirements
  • [Add/delete as applicable]

8) Mortgage & Home Finance Objectives

[Delete if not applicable to your business type. If applicable, please ensure that you customise this section to include any obligations your firm has under MCOB 11.]

The company as a lender and provider under regulated mortgage contracts and home purchase plans, ensure the assessment of affordability for every customer prior to entering into any contract. We have robust controls and measures in place to ensure that: –

  • Before entering into, or agreeing to vary, a regulated mortgage contract or home purchase plan, we always assess whether the customer (and any guarantor of the customer’s obligations under the regulated mortgage contract or home purchase plan) will be able to pay the sums due
  • All assessments and searches are recorded to enable us to demonstrate that any new or varied regulated mortgage contract or home purchase plan is affordable for the customer
  • Any assessment of affordability is never based on the equity in the property which is being used as security under the regulated mortgage contract or is subject to the home purchase plan
  • All affordability assessments take full account of: –
    • the income of the customer, net of income tax and national insurance
    • as a minimum, the customer’s committed expenditure and the basic essential expenditure and basic quality-of-living costs of the customer’s household
  • When acting in the provision of a mortgage lender, we always assess affordability on the basis of both repayment of capital and payment of interest over the term and consider the impact of likely future interest rate increases on such assessed affordability

All affordability assessments are backed-up by evidence and reviewed in accordance with the FCA’s regulatory requirements. the company never rely on a general declaration of affordability by the customer or their representative.

9) Responsibilities

The company ensures that all staff are provided with the time, training and support to learn, understand and implement our objectives and procedures for assessing affordability, creditworthiness and product/service suitability and that all regulatory requirements are understood and complied with.