Responsible lending requirements—CONC 5
Produced in partnership with Jacqui Hatfield of Orrick Herrington & Sutcliffe UK LLP
Responsible lending requirements—CONC 5

The following Financial Services guidance note Produced in partnership with Jacqui Hatfield of Orrick Herrington & Sutcliffe UK LLP provides comprehensive and up to date legal information covering:

  • Responsible lending requirements—CONC 5
  • Creditworthiness assessment (CONC 5.2A)
  • Creditworthiness assessment to be reasonable
  • Conduct of business in relation to creditworthiness and affordability
  • Conduct of business—credit brokers (CONC 5.4)
  • Creditworthiness assessment—P2P agreements (CONC 5.5A)

Firms carrying on a consumer credit-related activity must comply with the Financial Conduct Authority’s (FCA) Consumer Credit Sourcebook (CONC). CONC chapter 5 (CONC 5) applies to all firms with respect to consumer credit lending and contains rules and guidance on responsible lending requirements, including the requirement to conduct a creditworthiness assessment before entering into an agreement, conduct of business in relation to credit brokering and peer to peer (P2P) agreements and conduct of business in relation to affordability and creditworthiness.

The FCA launched a consultation paper (CP17/27) on July 31 2017, CP17/27: Assessing creditworthiness in consumer credit on proposed changes to its rules and guidance on assessing creditworthiness in consumer credit.

The FCA's consultation was prompted by concerns about the risk of potential harm to consumers from poor culture and practice by firms. The FCA was worried that this could lead to consumers being granted credit which they cannot afford to repay, causing financial distress. It could also lead firms to develop processes which are unduly costly or restrictive.

The FCA was looking to clarify:

  1. the distinction between affordability and credit risk

  2. the factors that should be used when deciding the proportionality of assessments

  3. the role of income and expenditure information

  4. its expectations around firms' policies and procedures

In particular, the FCA's rules introduce an explicit definition of 'affordability risk'. This sets out the