Jonathan Davidson has spoken on getting affordability right in consumer credit. He said that as the UK consumer credit sector is growing, so are concerns about excessive debt. FCA does not consider the sector has yet reached levels of debt that are likely to be harmful to lenders. His focus was on harm to borrowers, and was based on three principles:
- a firm whose business model is predicated in selling products to customers who cannot afford to repay them is not acceptable, nor a sustainable long-term strategy;
- firms must be sure to consider not only whether a customer has a history of being able to repay, but also whether they are likely to be able to do so in future; and
- a healthy firm culture is key to a successful business model.
He spoke of examples, including that some consumers will not be able to repay all their debts but will always priorities some kinds of debt above others. He compared the consumer credit affordability checks with the more stringent mortgage checks which require a full income and expenditure assessment. He noted the need for common sense when considering lending decisions, and the ability to use a forward-looking mindset. Good culture, and accountability and responsibility within firms, already introduced in the SMR, should give clarity to firms on who is responsible for what and lead to healthier cultures.