Since introducing new regulations in 2014, the FCA has been making significant progress in driving up standards in the sector. As a result of these tougher rules, over 1,400 consumer credit companies have left the industry and more than 30,000 applications for authorisation have been determined by the FCA. Affordability assessments are key to the success of this process, as they let lenders show they are making fair customer treatment central to their business. Through proper verification of applicants’ incomes, lenders can ensure that customers can afford new credit comfortably.
Despite this, many businesses are struggling to get support to update their affordability assessment processes, with 64% of customer experience professionals citing a lack of Board buy-in as a major hurdle.
How can risk professionals better demonstrate the importance of affordability assessments to their senior management? And, more importantly, why should they?
Affordability assessments provide a greater understanding of a consumer’s financial background, which is key to putting the customer first and making more informed lending decisions. As a result of the digitalisation of customer data from businesses in financial services, a wealth of information on existing and prospective customers is available. Lenders can obtain a more accurate, real-time view of their customers’ income, living costs and spending habits; ensuring a much quicker and frictionless process from the point of application.
People expect businesses to take their responsibility to society seriously. For lenders, this means they must help customers manage their financial health and protect them from debt they cannot sustainably repay
Effective, ongoing affordability assessments are the best way to ensure that you truly understand your customers’ financial circumstances. This awareness helps lenders identify those most at risk of defaulting on their payments, ultimately helping promote responsible lending.
What’s more, 83% of risk professionals told us that customers expect to be asked about long-term changes to their income and retirement plans. This ultimately allows customers to feel valued and receive services from an organisation that takes an interest in them personally.
This shouldn’t take much convincing. The FCA will continue to ensure regulation is met, and its rules will change in the future to further protect consumers. Lenders must comply with regulatory requirements, and affordability assessments help them do this. By using affordability solutions that assess a customer’s current financial situation and validate affordability and income, creditors are essentially automating compliance procedures. Not to mention they are embedding the fair treatment of customers into their corporate culture and services.
There are many benefits of updating your businesses’ affordability assessment processes. Yet it is clear from the findings of our research that increased investment – both in terms of time and budget – is needed. The challenge for risk professionals therefore lies in effectively demonstrating the benefits to senior management and board members. Improved affordability assessments are a requirement that will not just enhance the customer experience and improve business efficiencies, but ensure that you take your responsibility to your customers seriously and treat them fairly.
Improve your business efficiencies with The New Affordability report – watch the video for more on how embracing The New Affordability can elevate business efficiencies.
Get your copy of The New Affordability report for more insights, and to find out how you can further improve your affordability assessments.
Want to speak to somebody at Callcredit about our Affordability suite? Call us on 0113 220 1616.
Author: Eamonn Tierney, Managing Director – UK Business Development