Recent regulatory changes for Consumer Credit firms

Making smart financial decisions in an uncertain economic climate is challenging. Amidst a cost-of-living crisis, individuals and families sometimes need to borrow money for big ticket items or just to get through the month. For some, this can result in struggling with bill payments.

According to the ONS: “more than a fifth of adults in Great Britain (22%, equal to around 11.5 million people) reported borrowing more money or using more credit because of the increased cost of living between 25 January and 5 February 2023. This is an increase from 17% between 19 and 30 January 2022.1

In its 2022 to 2025 strategy, the Financial Conduct Authority (FCA) has recognised this challenge, stating that “Combined with greater vulnerability among consumers due to the pandemic, this [The rising cost of living] may drive greater demand for a range of credit products. Consumers will also increasingly look for new ways to manage and make more of their money.”

As part of this challenge, consumer credit firms across the UK are facing new regulations that mean you must do more to ensure that customers are offered the right products that offer fair value. Importantly, in addition consumer credit firms must ensure that during the process of forbearance, when customers are unable to repay, that greater efforts are made to understand the customer’s real financial situation and find a fair solution for both parties. Both requirements fall under the Consumer Duty regulations and mean that consumer credit firms have increased responsibility placed on them.

This new Consumer Duty has established higher and clearer consumer protection standards across consumer credit and the wider financial services sector. A simple interpretation is that it requires firms to put their customers’ needs first and be aware of any vulnerability and affordability issues. The rules, which apply to all FCA regulated firms, mean that you must consider the needs, behaviour, characteristics and objectives of your customers – including those with characteristics of vulnerability – at every stage of the customer borrowing journey.

Protecting consumers from losing life-changing amounts of money and making sure clients can afford their financial commitments must be a priority. Not least because the FCA is threatening “severe penalties” for firms that are non-compliant:

‘Firms which don’t meet our minimum standards put consumers at risk. They also undermine trust in financial services and markets. We will act faster, challenging ourselves and testing the limits of our powers, to remove these firms from the market. Doing this will support us in reducing and preventing harm, and ultimately, creating a better functioning market.’ 

FCA, Our Strategy, 2022-2025

But how, and with what tools, can consumer credit firms ensure that their customers achieve good outcomes, get fair value and avoid preventable harm?

The good news is that advancements in financial technology since the 2008 financial crisis have made it much easier for consumer credit firms to get the financial data, analysis and insight needed to make effective, client-focused decisions.

Armalytix, is a data intelligence firm that allows customers to safely share open banking and other data to deliver financial insights to firms, helping those firms comply with their Consumer Duty obligation with faster and more effective affordability and creditworthiness checks. Already used across the legal, accounting, gaming and wider financial service sector, we help consumer credit firms to understand their customers’ finances quickly and effectively.

Make better creditworthiness, affordability and forbearance decisions faster and spot the customers who are vulnerable to harm.

Get in touch today to find out how we can help your business comply with the latest regulatory changes and make informed decisions that act in your client’s interests.

By The Armalytix Team — 9 November 23

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