Responsible lending in consumer credit

Ensuring that credit remains affordable is a cornerstone of responsible lending. Lenders must conduct robust affordability assessments to prevent financial harm while maintaining access to credit. We have seen regulatory expectations continue to tighten, requiring firms to refine their processes.

Affordability assessments have become more complex in recent years. The FCA expects lenders to go beyond basic income and expenditure checks, incorporating real-time data and behavioural insights.

Did the FCA get this wrong? The FCA went through a period where it believed that arrears and defaults could be mitigated through its affordability work. Their leadership seemed surprised at how sticky some of those numbers were despite the ramping up of regulation, at the heart of this appeared to be a lack of recognition of why lending sometimes goes wrong. That makes it more challenging for lenders to balance preventing over-indebtedness and ensuring creditworthy customers are not excluded.

Credit is a key financial tool that helps individuals manage expenses, cover unexpected costs and improve their financial stability. Without fair access to credit, many people may struggle to meet essential financial needs or plans for the future.

Regulatory scrutiny has also intensified under the Consumer Duty, with a focus on ensuring fair value and customer outcomes. Lenders must consider fluctuating incomes, rising living costs, and economic pressures while maintaining transparency in their decision-making processes.

CCTA works on behalf of members to advocate for proportionate regulation that protects consumers while allowing responsible lenders to operate effectively. We provide resources, training, and compliance support to help lenders meet affordability requirements.

Affordability remains a key challenge for lenders as they balance responsible lending with commercial viability. To stay ahead of regulatory changes and implement practical assessments, access our affordability guidance, sign up for our industry briefings, or connect with us for expert support.