CONC 6.2 Assessment of creditworthiness: during agreement

1. (1)

   Before significantly increasing:

   1. (a)

      the amount of credit to be provided under a regulated credit agreement; or

   2. (b)

      a credit limit for running-account credit under a regulated credit agreement;

   the lender must undertake an assessment of the customer's creditworthiness.

   [Note: section 55B(2) of CCA]

2. (2)

   A firm carrying out the assessment in (1) must consider:

   1. (a)

      the potential for the commitments under the regulated credit agreement to adversely impact the customer's financial situation, taking into account the information of which the firm is aware at the time that the increase in (1) is to be granted; and

   2. (b)

      the ability of the customer to make repayments as they fall due over the life of the regulated credit agreement, or for such an agreement which is an open-end agreement, to make repayments within a reasonable period.

      [Note: paragraphs 4.1 and 4.3 of ILG]

3. (3)

   A creditworthiness assessment must be based on sufficient information obtained from:

   1. (a)

      the customer, where appropriate, and

   2. (b)

      a credit reference agency, where necessary.

4. (4)

   This rule does not apply to:

   1. (a)

      an agreement secured on land; or

   2. (b)

      an agreement under which a person takes an article in pawn.

5. (5)

   This rule does not apply, except to the agreements in (6), to:

   1. (a)

      a non-commercial agreement;

   2. (b)

      a borrower-lender agreement enabling the borrower to overdraw on a current account;

   3. (c)

      a small borrower-lender-supplier agreement for restricted-use credit.1

6. (6)

   The agreements referred to in (5) and therefore to which this rule does apply are:

   1. (a)

      a borrower-lender agreement enabling the borrower to overdraw on a current account which is an authorised business overdraft agreement or an authorised non-business overdraft agreement; or

      [Note: section 74(1B)/(1C) of CCA]

   2. (b)

      a borrower-lender agreement enabling the borrower to overdraw on a current account which would be an authorised non-business overdraft agreement but for the fact that the credit is not repayable on demand within three months.

      [Note: section 74(1D) of CCA].

1. (1)

   2This rule applies if, in relation to a regulated credit agreement:

   1. (a)

      an individual other than the borrower (in this rule referred to as “the guarantor”) has provided a guarantee or an indemnity (or both); and

   2. (b)

      the lender is required to undertake an assessment of the customer under CONC 6.2.1R.

2. (2)

   Before doing either of the things mentioned in (1), the lender must undertake an assessment of the potential for the guarantor’s commitments in respect of the regulated credit agreement to adversely impact the guarantor’s financial situation.

3. (3)

   For the purposes of this rule, a guarantee does not include a legal or equitable mortgage or a pledge.

Where CONC 6.2.1 R or CONC 6.2.1AR2 applies to a firm:

[Note: paragraph 4.2 of ILG]

1. (1)

   the firm must comply with CONC 5.3.2 R, CONC 5.3.4 R, CONC 5.3.5 R, CONC 5.3.6 R and CONC 5.3.7 R

2. (2)

   the rules in CONC 5.3 referred to in (1) apply with the modifications necessary to take into account that CONC 6.2.1 R concerns increases in the amount of credit and in credit limits and when the increase is to take place;2

3. (3)

   the guidance in CONC 5.3 applies accordingly and CONC 5.2.3 G and CONC 5.3.4 R apply treating them as guidance on CONC 6.2.1 R or, as the case may be, on CONC 6.2.1AR; and2

4. (4)

   for the purposes of CONC 6.2.1AR, the rules specified in (1), as modified by (2), and the guidance specified in (3) apply as if references to the customer were references to the guarantor.2

A firm must consider sufficient information available to it at the time of the increase referred to in CONC 6.2.1 R to enable it to make a reasonable assessment required by that rule or CONC 6.2.1AR. The provision of the guarantee or indemnity (or both), and the assessment of the guarantor, does not remove or reduce the obligation on the firm to carry out an assessment of the borrower under CONC 6.2.1R. 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.2

[Note: paragraph 4.21 of ILG]