Creditworthiness and Affordability: FCA CONC 5.2A Explained

Lending responsibly means more than checking that a customer can probably make the first few payments. In the UK, the FCA's consumer credit rules require firms to assess creditworthiness before lending, with specific attention to whether the customer can afford the credit. This guide summarises CONC 5.2A, the part of the FCA Handbook that sets out the creditworthiness assessment, as it appears on the FCA Handbook site. It supports our course overview on responsible lending and affordability, and it connects to our wider guide to consumer credit reform in the UK.

When the assessment is required

CONC 5.2A applies to firms carrying on consumer credit lending, with exclusions for certain pawn agreements, some current account agreements, non-commercial agreements and small restricted-use agreements. Under CONC 5.2A.4R and 5.2A.5R, a firm must make a reasonable creditworthiness assessment before entering into a regulated credit agreement, significantly increasing the amount of credit, or significantly increasing a running-account credit limit. It must also have proper regard to the outcome in respect of affordability risk. Cumulative increases that become significant over time also trigger a new assessment (CONC 5.2A.6).

Two risks, not one

The assessment looks at credit risk, which is the risk that the customer will not make repayments by their due dates, and affordability risk, which is the risk to the customer of being unable to repay in the manner the rules describe. CONC 5.2A.12 frames that as repaying over the life of the agreement without borrowing to do so, without missing other obligations and without a significant adverse impact on the customer's financial situation. Savings or assets can be counted only where the customer clearly intends to use them, and the firm must weigh their purpose, availability and any adverse impact. Guarantees and security must be disregarded when assessing the borrower's affordability.

Income and expenditure

The firm must take reasonable steps to determine or estimate the customer's current income and non-discretionary expenditure, unless it can demonstrate that doing so is obviously disproportionate (CONC 5.2A.15R to 5.2A.17). The guidance in CONC 5.2A.16G says a bare statement of income from the customer is generally insufficient without independent evidence. Statistical data may be used only if it is representative of the customer's situation.

Proportionality

CONC 5.2A.20R requires the depth of the assessment to be proportionate to the individual case. Relevant factors include the type, amount, duration, repayment profile and total cost of the credit, and the adverse consequences of default. Lower-cost, lower-value credit may need less information, while higher-risk indicators such as high debt relative to income call for a more rigorous assessment.

Information and verification

The information must be sufficient, known to the firm when the assessment is made, and obtained where appropriate from the customer and, where necessary, a credit reference agency. The firm must consider whether to verify accuracy and must evaluate the information. Information from previous dealings may be used, but the firm should consider whether it is outdated. The firm should note indicators of financial difficulty or vulnerability, and must not accept an application it suspects is untruthful about relevant information. Our guide to vulnerable customers covers that last point in more depth.

Why the two risks matter in practice

Reading the rules as a whole, the assessment looks at both sides of a lending decision: whether the customer can sustain repayments, and whether the credit could harm them even when repayments are made on time. In our reading, that is why income and expenditure checks sit alongside questions about the purpose of the credit and the customer's circumstances. A file that records only a pass or fail on a payment-to-income ratio would not show the second question was considered. This is our interpretation of the structure of the rules, so confirm it against the current Handbook text.

Special cases

For open-end credit, firms must make reasonable assumptions about duration and, for running-account credit, assume drawdown of the full limit. For joint borrowers and business borrowers, separate assessments may be appropriate. For guarantors, a separate, proportionate assessment of the guarantor's potential to suffer significant adverse impact is required, which does not reduce the firm's duty to assess the borrower.

Policies and records

Under CONC 5.2A.33 and 5.2A.34, firms must keep written, approved policies and procedures, review them periodically, and keep records sufficient to show that assessments were carried out and were reasonable, so that the FCA can monitor compliance.

Practical steps: our suggestions

These steps are our suggestions, not requirements in the rules. Test a sample of files for whether the income evidence supports the figure used. Check that higher-risk indicators prompt a deeper assessment in practice. Look at how staff handle applications they suspect are untruthful. Track outcomes, such as arrears and forbearance, to see whether affordability decisions are holding up. For structured learning, browse our CPD courses.

What we could not confirm

The Handbook page we read showed a blank "as at" date and said CONC 5.2A was last updated on 4 November 2024, so the current version should be checked before relying on this summary. We did not read the rest of CONC 5, other FCA guidance on affordability, or the Irish rules on creditworthiness, such as those under the Consumer Credit Directive implementation, so this post covers the UK only. This post is general information, not legal advice.