The extent and scope of the creditworthiness assessment or the assessment required by CONC 5.2.2R (1), in a given case, should be dependent upon and proportionate to factors which may include one or more of the following:

1. (1)

   the type of credit;

2. (2)

   the amount of the credit;

3. (3)

   the cost of the credit;

4. (4)

   the financial position of the customer at the time of seeking the credit;

5. (5)

   the customer's credit history, including any indications that the customer is experiencing or has experienced financial difficulties;

6. (6)

   the customer's existing financial commitments including any repayments due in respect of other credit agreements, consumer hire agreements, regulated mortgage contracts, payments for rent, council tax, electricity, gas, telecommunications, water and other major outgoings known to the firm;

7. (7)

   any future financial commitments of the customer;

8. (8)

   any future changes in circumstances which could be reasonably expected to have a significant financial adverse impact on the customer;

9. (9)

   the vulnerability of the customer, in particular where the firm understands the customer has some form of mental capacity limitation or reasonably suspects this to be so because the customer displays indications of some form of mental capacity limitation (see CONC 2.10).

   [Note: paragraph 4.10 of ILG]

1. (1)

   To consider all of the factors set out in CONC 5.2.3 G in all cases is likely to be disproportionate.

   [Note: paragraph 4.11 of ILG]

2. (2)

   A firm should consider what is appropriate in any particular circumstances dependent on, for example, the type and amount of the credit being sought and the potential risks to the customer. The risk of credit not being sustainable directly relates to the amount of credit granted and the total charge for credit relative to the customer's financial situation.

   [Note: paragraph 4.11 and part of 4.16 of ILG]

3. (3)

   A firm should consider the types and sources of information to use in its creditworthiness assessment and assessment required by CONC 5.2.2R (1), which may, depending on the circumstances, include some or all of the following:

   1. (a)

      its record of previous dealings;

   2. (b)

      evidence of income;

   3. (c)

      evidence of expenditure;

   4. (d)

      a credit score;

   5. (e)

      a credit reference agency report; and

   6. (f)

      information provided by the customer.

      [Note: paragraph 4.12 of ILG]

4. (3A)

   Where the customer is borrowing for the purposes of a business, it may be reasonable to have regard to the customer’s business plan for the purposes of an assessment required by CONC 5.2.1R or CONC 5.2.2R, but the assessment should not be based solely on that business plan.1

5. (3B)

   Where there is more than one customer acting together as ‘joint borrowers’, the lender should consider whether it may be appropriate to assess each customer in accordance with CONC 5.2.1R or CONC 5.2.2R separately (as well as collectively), having regard to the risk to that customer arising from the credit being sought were the customer to be treated as being solely responsible for obligations of the joint borrowers under the agreement. (Where the borrower is a partnership or an unincorporated association, the members or partners may be treated as a single customer.)1

6. (4)

   A high level of scrutiny in the assessment required by CONC 5.2.2R (1) would normally be expected before the lender enters into a regulated credit agreement secured by a second or subsequent charge on the customer's home.

   [Note: paragraph 4.17 of ILG]

1. (1)

   1The assessment of the guarantor does not need to be identical to the assessment undertaken in respect of the borrower, but should be sufficient in depth and scope having regard to the potential obligations which might fall on the guarantor.

2. (2)

   The provision of the guarantee or indemnity (or both), and the assessment of the guarantor under CONC 5.2.5R, does not remove or reduce the obligation on the lender to carry out an assessment of the borrower under CONC 5.2.1R or CONC 5.2.2R. Firms are reminded of the rule in CONC 5.3.4R that the assessment of the borrower must not be based primarily or solely on the value of any security provided by the borrower.

1. (1)

   In making the creditworthiness assessment or the assessment required by CONC 5.2.2R (1), a firm should take into account more than assessing the customer's ability to repay the credit.

   [Note: paragraph 4.2 of ILG]

2. (2)

   The creditworthiness assessment and the assessment required by CONC 5.2.2R (1) should include the firm taking reasonable steps to assess the customer's ability to meet repayments under a regulated credit agreement in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences.

   [Note: paragraph 4.1 (box) and 4.2 of ILG]

3. (3)

   A firm in making its creditworthiness assessment or the assessment required by CONC 5.2.2R (1) may take into account future increases in income or future decreases in expenditure, where there is appropriate evidence of the change and the repayments are expected to be sustainable in the light of the change.

   [Note: paragraph 4.9 of ILG]

4. (4)

   If a firm takes income or expenditure into account in its creditworthiness assessment or its assessment required under CONC 5.2.2R (1):

   1. (a)

      the firm should take account of actual current income or expenditure and reasonably expected future income or expenditure (to the extent it is proportionate to do so) where it is reasonably foreseeable that it will differ from actual current income or expenditure over the anticipated repayment period of the agreement;

   2. (b)

      it is not generally sufficient for a firm to rely solely for its assessment of the customer's income and expenditure, on a statement of those matters made by the customer;

   3. (c)

      its assessment should be based on what the firm knows at the time of the assessment.

      [Note: paragraph 4.13, 4.14 and 4.15 of ILG]

5. (5)

   An example of where it may be reasonable to take into account expected future income would be, in the case of loans to fund the provision of further or higher education, provided that an appropriate assessment required by this chapter is carried out and there is an appropriate exercise of forbearance in respect of initial repayments, for example, deferring or limiting the obligation to repay until the customer's income has reached a specified level. Any assumptions regarding future income should be reasonable and capable of substantiation in the individual case and the products should be designed in a way to minimise the risks to the customer.

   [Note: footnote 21 to paragraph 4.9 (box) of ILG

6. (6)

   For the purposes of CONC “sustainable” means the repayments under the regulated credit agreement can be made by the customer:

   1. (a)

      without undue difficulties, in particular:

      1. (i)

         the customer should be able to make repayments on time, while meeting other reasonable commitments; and

      2. (ii)

         without having to borrow to meet the repayments;

   2. (b)

      over the life of the agreement, or for such an agreement which is an open-end agreement, within a reasonable period; and

   3. (c)

      out of income and savings without having to realise security or assets; and

   “unsustainable” has the opposite meaning.

   [Note: paragraphs 4.3 and 4.4 of ILG]

7. (7)

   For a regulated credit agreement which is an open-end agreement the firm, in making its creditworthiness assessment or the assessment required by CONC 5.2.2R (1), should:

   1. (a)

      make a reasonable assessment of whether the customer is able to meet the repayments in a sustainable manner; and

   2. (b)

      make the assessment based on reasonable assumptions about the likely duration of the credit.

      [Note: paragraph 4.5 of ILG]

8. (8)

   For a regulated credit agreement for running-account credit the firm, in making its creditworthiness assessment or the assessment required by CONC 5.2.2R (1):

   1. (a)

      should consider the customer's ability to repay the maximum amount of credit available (equivalent to the credit limit) under the agreement within a reasonable period;

   2. (b)

      may, in considering what is a reasonable period in which to repay the maximum amount of credit available, have regard to the typical time required for repayment that would apply to a fixed-sum unsecured personal loan for an amount equal to the credit limit; and

   3. (c)

      should not use the assumption of the amount necessary to make only the minimum repayment each month.

      [Note: paragraph 4.6 of ILG]

9. (9)

   For a regulated credit agreement for running-account credit the firm should set the credit limit based on the creditworthiness assessment or the assessment required by CONC 5.2.2R (1) and taking into account the matters in CONC 5.2.3 G, and, in particular, the information it has on the customer's current disposable income taking into account any reasonably foreseeable future changes.

   [Note: paragraph 4.6 (box) of ILG]

10. (10)

    An example of a reasonably foreseeable future change in disposable income which a firm should take into account in setting a credit limit may include where a customer is known to be, or it is reasonably foreseeable that a customer is, close to retirement and faces a significant fall in disposable income.

    [Note: paragraph 4.6 (box) of ILG]

11. (11)

    Where a firm requests information from a customer for its creditworthiness assessment or its assessment required by CONC 5.2.2R (1) and the information provided by the customer is false and the firm has no reason to know this is the case, the firm should not contravene CONC 5.2.1 R or CONC 5.2.2 R.

    [Note: paragraph 4.10 of ILG]

12. (12)

    Subject to the relevant legal constraints, FCA encourages the sharing between lenders of accurate data about the performance of a customer's account and the settlement of outstanding debts, as the process of making the assessments in this chapter is assisted by lenders registering such data with credit reference agencies, in a timely manner.

Under the procedures required by CONC 5.3.2 R a firm should take adequate steps, insofar as it is reasonable and practicable to do so, to ensure that information (including information supplied by the customer) on an application for credit relevant to a creditworthiness assessment or an assessment required byCONC 5.2.2R (1) is complete and correct.

[Note: paragraph 4.29 of ILG]

An example of where a firm ought reasonably to suspect that the customer has not been truthful may be that the information supplied by the customer concerning income or employment status is clearly inconsistent with other available information.

1. (1)

   This section contains rules that apply to the person operating the electronic system that facilitates persons becoming lenders and borrowers under P2P agreements, in contrast to CONC 5.2 which applies to the lender.

2. (2)

   A P2P agreement may also be a credit agreement or a regulated credit agreement in which case applicable provisions of the CCA or CONC will apply to such agreements. The extent to which CCA provisions apply to a lender will depend largely on whether the lender makes the credit agreement in the course of carrying on a business.

1. (1)

   1The assessment of the guarantor does not need to be identical to the assessment undertaken in respect of the borrower, but should be sufficient in depth and scope having regard to the potential obligations which might fall on the guarantor.

2. (2)

   The provision of the guarantee or indemnity (or both), and the assessment of the guarantor under CONC 5.5.7R, does not remove or reduce the obligation on the firm to carry out an assessment of the borrower under CONC 5.5.3R. Firms are reminded of the rule in CONC 5.3.4R that the assessment of the borrower must not be based primarily or solely on the value of any security provided by the borrower.