Consumer Duty could lead to stricter lending criteria
The new Consumer Duty may result in lenders tightening their credit assessment processes and rejecting more applicants, experts have suggested.
The Financial Conduct Authority’s new Duty comes into force today (31 July), mandating regulated financial services firms – including lenders – to put customer’s needs first. The aim of the Duty is to sets higher and clearer standards of consumer protection.
“With the new rules in place, lenders will need to change their standards of support and provide consumers with protection to promote good outcomes,” said Frode Berg, managing director for EMEA at AI-powered credit risk decisioning platform Provenir.
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“This may result in lenders being more cautious and thorough in their assessment of applicants, which could potentially lead to stricter lending criteria. As a result, some individuals who may have previously qualified for credit may now face more difficulty in obtaining it.”
Berg went on to say that the new Duty will “have a significant impact on lenders’ credit risk assessment processes”, as they will need to gather more data to have a more holistic understanding of applicants to comply with the rules.
Berg added that the new rules could change the types of products and services available in the lending sector.
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“The new rules will require lenders to prioritise customer outcomes and put the interests of their customers first,” he said. “This will mandate a shift in the lending industry towards a more customer-centric approach. Lenders will need to invest in technology and processes that allow them to comply with the regulations at a product level and meet the new standards of support.
“The availability of credit may be influenced by lenders’ ability to adapt and comply with the Consumer Duty requirements, potentially leading to changes in the types of products and services offered in the lending sector.”
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Berg’s comments come as fresh money and credit data from the Bank of England today showed that consumer borrowing hit a five-year high in June, as the cost-of-living crisis rages on.
£1.7bn was borrowed last month, following a £500m decrease in lending in May.
The increase is due to a £500m rise in personal and car loans to £1bn.
Credit card debt remained stable at £600m.
Despite rising interest rates, the number of mortgage approvals increased to 54,700 in June – the highest number since October 2022.
