Last summer, the Financial Conduct Authority (FCA) issued a consultation paper (CP17/27) on creditworthiness and affordability and has now published its feedback regarding final rules and guidance that must be complied with by November 2018. The consultation was designed to address concerns about the risk of harm to consumers from the poor culture and practice of some financial services organisations, which the FCA believes could lead to consumers getting access to credit they could not afford to repay and cause financial distress.

This is linked to wider concerns about the high levels of consumer debt. In particular, the FCA wanted to clarify:

- the distinction between affordability and credit risk
- the criteria for deciding the proportionality of assessments
- the role of income and expenditure information
- their own expectations of firms’ policies and procedures

At Premium Credit, we have been actively engaged in discussions with the FCA, and the following piece provides an update on our approach to affordability, our views about the future and the support we are already offering the industry in implementing the required changes.

Our Response to the Creditworthiness Consultation
When we responded to the FCA last autumn, we outlined our views on the different elements raised in the consultation paper.  Along with our written response, we have been in regular dialogue with the FCA and other industry bodies, such as BIBA, as we formulated our views on the regulator’s proposed changes.

Last year, we sought to evolve our approach to affordability assessments in line with the proposed new rules to ensure our partners saw minimal disruption to their customer journeys. As a market leader who is committed to responsible lending, we believe that consumers should be able access credit while ensuring they are appropriately protected. We take a balanced approach to the new rules, considering the impact on customers, brokers and the premium finance industry to make sure that it is easy to process and administer the new requirements. Over the last year, we have been working closely with our partners and proactively feeding back to the FCA about the impact of its proposed approaches to assessing affordability.

We have highlighted that premium finance is used to purchase important and often essential products for consumers, such as car and home insurance. We want to make sure that such products are as accessible to consumers as possible by ensuring a customer has choices about how to fund their purchases. Premium Finance is frequently a convenient option to fund insurance premiums, as it's linked to the insurance policy, is competitively priced and offers an alternative source of credit.

Our Approach
Our early engagement has enabled us to invest in our systems and make changes to make certain we develop an easier process for our partners, and we are ready to conduct the necessary affordability checks to comply with the new rules from the day they are introduced - another industry first. Our new affordability approach has been live since January 2018.

Our ambition has been to ensure the customer’s experience is painless, and the brokers’ work is kept to a minimum by applying technology intelligently for the benefit of the customer and to reduce administration.

As a result, we have invested in real-time technology which provides customers with an instant decision during the customer journey.

Our digital approach:
- helps to avoid delay and unnecessary confusion in the sales process
- aims to reduce the amount of extra calls to customer service teams
- accesses external data, including credit reference data, reducing the need for capturing additional information
- is seamlessly added to the broker’s or insurer’s existing processes

Our early adoption, and desire to help brokers develop their businesses, means our existing partners will not face disruption or uncertainty - an accepted customer is an accepted customer. For brokers looking to start work with us, we have a highly trained team to implement new technology quickly, and training so you can be up and running quickly.

Market View
David Sparkes, BIBA’s Head of Compliance & Training comments “BIBA welcomes Premium Credit’s approach and desire to make the administrative burden which could flow from the new rules, as light as possible for brokers.”

As loans go, premium finance is low risk, with amounts being borrowed that are relatively low and durations that are short. Additionally, with returns of premium used to offset an outstanding loan should there be a default, consumers are not saddled with a burgeoning debt to repay.

Along with Premium Credit, BIBA is pleased that the FCA has stated that affordability assessments should be proportionate to the risk and calls on the regulator to allow our sector to deliver to that proportionality principle."

If you would like to know more about our approach to the changing legislation, our real-time technology or how Premium Credit provides premium finance to your customers, please contact email marketing@pcl.co.uk or contact a member of our sales team.

Adam Morghem
Strategy and Marketing Director, Premium Credit