Since taking on responsibility for the regulation of consumer credit in April 2014, the FCA has been addressing issues in this sector. It has always been one of its priorities to tackle risks in the high-cost credit market including payday lending, overdrafts, home-collected credit and catalogue credit.

In response to the increased number of complaints on unaffordable lending, the FCA published a Dear CEO letter on affordability in high-cost short-term credit on 15 October 2018. Assessing the extent to which creditworthiness assessments are compliant is a particularly topical subject in the wake of the latest changes to CONC (PS18/10) on 1 November 2018. As such, whilst this letter is addressed to high-cost short-term credit firms, other retail lending firms should also consider its content and sentiments.


On 15 October 2018, the FCA published a Dear CEO letter, setting out how the FCA expects high-cost short-term credit firms to manage issues surrounding the increase in complaints on unaffordable lending.

  1. The FCA emphasises that firms should identify their problems in providing financial services, including problems relating to the carrying out of affordability assessments.
  2. When problems are identified, firms should ascertain the scope and severity of the customer detriment.
  3. Firms should consider whether it is fair and reasonable to proactively undertake a redress or remediation exercise, which may include contacting customers who have not complained.

The FCA highlights the risks relating to ‘repeat borrowing’ and refers to the new rules and guidance set out in PS18/19, which came into force on 1 November 2018. In addition, firms are reminded that they must inform the FCA immediately if they become aware or have information which suggests that there are significant breaches of the rules. In this letter, the FCA takes a step forward: prompting firms to consider ceasing lending until any contraventions are remediated.

Reflections and challenges to the firms

This letter is not surprising given that ‘high-cost credit’ and ‘treatment of existing customers’ are both key FCA priorities according to the FCA Business Plan for 2018/19. Historically, many enforcement actions which took place were in relation to affordability of lending to customers who subsequently went into arrears. It appears that the FCA is concerned about the customers who continuously borrow but have never fallen into arrears.

Repeat borrowing

‘Repeat borrowing’ has become a key FCA focus (the FCA also raised its concerns on ‘persistent debt’ in PS18/4: Credit Cards and Persistent Debt). Firms should undertake a self-reflection on their ‘repeat borrowing’ policies and establish clear management information to ensure that they are making responsible assessments of the sustainability of borrowing. For example firms should take into account the number, frequency, and the length of time that a customer has been given a ‘continuous chain of loans’.

Using third party data to inform lending decisions

This is emphasised in the FOS decisions that firms must be able to explain how data from the Credit Bureau or other third parties is used to perform an adequate and fair assessment of a customer’s affordability risk. Therefore, tailored documented specifications and/or policy and procedures of data interpretation, which explain the affordability assessments and lending decisions, is necessary.

Affordability complaints handling and FOS directions

Firms must establish that they analyse the root causes of complaints efficiently and accurately, and to correct such root causes when necessary. Firms may consider bolstering their complaints data to improve their approach to handling unaffordable lending complaints. In addition, the FCA reminds firms that they must comply promptly with the FOS awards or directions. In light of this, firms can refer to the FCA Consultation Paper: Increasing the award limit for the FOS (CD18/31), released on 16 Oct 2018.

PS18/19: New rules and guidance

Changes in PS18/19 clarify the distinction between credit risk and affordability risk. Firms should take a proportionate approach, taking into account the costs and risks of the credit for individual customer, and make a reasonable assessment of the customer’s ability to repay affordably. The FCA reminds firms that they must review their policies and procedures to ensure that they can evidence their compliance of the new rules and guidance.

How can Deloitte help?

Deloitte’s Retail Conduct Risk Team has extensive experience in conducting reviews on creditworthiness assessments, collections, complaints handling and overall customer outcomes testing etc. We understand the regulator’s expectations and have completed a number of investigations and reviews under FCA’s scrutiny with a large number of firms. We can offer the following assistance:

  • Conducting review(s) to provide assurance that the firms’ creditworthiness assessments (including repeat borrowing and data utilisation) and/or complaints handling procedures (including adequacy of the root cause analysis) are compliant with the latest FCA’s expectations, in particular in the context of the most recent changes to CONC.
  • Conducting Past Business Review to help firms gain assurance that their historic creditworthiness (and affordability risk) assessments and historic complaints handling practices on unaffordable lending are compliant with the regulations applied at the time, and identify the severity of customer detriment (if any).
  • Overseeing and providing assurance and recommendations on the proposed or ongoing Customer Contact Exercise to provide comfort to management and potentially the regulator that affected customers are treated fairly.



Cindy Chan - Partner, Risk Advisory

Cindy Chan has over 20 years of financial services consulting and audit experience. She has extensive experience in the supporting firms with regulatory risk assurance reviews and conduct risk projects covering product development and governance, sales and suitability assurance, as well as Section 166 Skilled Person reviews and enforcement cases. Cindy also has wider experience within the mortgages and consumer lending sector, including affordability assessments and debt collection activity, vulnerable customers and complaints handling.

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Nicola Vincent  - Director, Risk Advisory

Nicola is a Director in Deloitte’s Financial Risk Advisory Practice. She specialises in supporting consumer credit firms with their preparations for FCA regulation and authorisation, and is the lead for providing ongoing support to consumer credit firms aiming to meet FCA regulatory expectations. Nicola specialises in supporting clients with their preparations ahead of FCA meetings, including senior management interviews, and has led engagements to support firms design and review their conduct risk frameworks in particular looking at their treatment of vulnerable customers.

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Ocean Sin - Assistant Manager, Risk Advisory

Ocean is an Assistant Manager within Deloitte’s Risk and Regulation Practice. Ocean has over 4 years of financial services consulting experience. Ocean’s focus is the regulation and risk management of retail financial services products. Products that Ocean has worked with include mortgages, consumer credit, investment products, ATMs and payments. Ocean’s work covers affordability assessment, post-sale management including arrears, collections and complaints handling and sales process. Projects that Ocean has worked on include past business reviews, remediation, affordability assessments, files reviews, sales reviews and s166 investigations.

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