The FCA’s rules on responsible lending are set out in CONC 5 which were last updated in 2018. They originate from the “Irresponsible Lending Guidance” which was published by the OFT in 2010 (and updated in 2011).
Before entering into a credit agreement with a customer, a lender must make a reasonable assessment of the customer’s creditworthiness and how affordable and sustainable the credit is – the risk to both the lender (credit risk) and customer (affordability risk). This assessment must include considering the customer’s financial wellbeing – that is, the potential for the commitments under the credit agreement to have an adverse impact on the customer’s financial situation.
The assessment is intended to determine the customer’s ability to make repayments as they fall due over the life of the credit agreement. It must be based on sufficient information, which may be obtained from the customer, where appropriate, and from a credit reference agency, to establish the customer’s credit history.