You are here: Home - News -

Affordability can be deceptive, says FCA

by: Heather Greig-Smith
  • 30/03/2017
  • 0
Affordability can be deceptive, says FCA
Lenders must reconsider affordability as consumer credit grows, the FCA director of supervision – retail and authorisations – has told creditors.

Jonathan Davidson (pictured) today said lenders need to recognise that affordability and creditworthiness may not be the same thing, when he addressed the London Credit Summit.

“The interdependence of debt markets throws up some big questions for the industry about the meaning and definition of affordability and appropriate forbearance, none of which have easy answers,” he said.

“Consumers will often prioritise paying back a loan on a home or car, even if this makes meeting obligations on other forms of debt challenging.

“This essentially makes these assets look more affordable than they are, yet this won’t necessarily become obvious until it translates into the poor credit performance of other debts.”

Davidson said if the value of homes or cars falls into negative equity the seeming creditworthiness could shift “quite quickly and dramatically”.

He referred to StepChange estimates that over 2.5 million people are now using credit cards just to meet everyday living costs and emergency expenses. Also, 16 million people in the UK have savings of less than £100.

Firms are making encouraging progress on forbearance, Davidson told the sector, but much of this comes down to culture. The FCA plans to say more on the assessment of affordability in the coming months.

“Those firms that put consumer wellbeing front and centre of their business models are not only more likely to be compliant, they will also be better business propositions.”

However, he said the FCA was more interested in customer good outcomes than in seeking technical breaches or minor errors to punish. Firms that focus on doing the bare minimum are more likely to be targets than those who have TCF at the heart of their business.

He pointed to the upcoming Senior Managers and Certification Regime as a way of holding individuals to account.

Ultimately, he said the credit industry must work together with the regulator.

“The FCA will continue to be a proactive regulator, demanding high standards of conduct from industry and never flinching from our responsibility to protect consumers and enhance the integrity of the market. But this has to be a conversation, not a monologue.”

There are 2 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
  • RT @ashridgepf: Well what a surprise! We love our clients and they obviously are quite fond of us. Mortgage applicants find humans more r…
  • RT @DanielleDennis9: Always love reading through the tweets of the year every December! Have a look through to recap on a great year https:…
  • RT @mortgagestall: Great to see the hard work brokers put in is getting ever-more recognised https://t.co/cg4ZaJzZJZ
Read previous post:
Old couple on money - equity release
Equity release lender prepares market entry

Equity release lender Responsible Lending plans to enter the market later this year after gaining regulatory approval at the end...

Close