Consumer Credit Affordability: CONC 5.2A Guide

Consumer credit affordability is not a single income-minus-expenditure calculation. It is a decision framework: what risk could this agreement create for this customer, what information is needed to assess that risk, and what evidence supports the final decision?

The governing rules sit in CONC 5.2A of the FCA Handbook. They require a lender to assess creditworthiness before entering into a regulated credit agreement and before significantly increasing the amount of credit. Creditworthiness includes both the credit risk to the lender and the affordability risk to the customer.

That distinction matters. A customer may be likely to repay and still face an unacceptable risk of doing so only by missing other obligations, borrowing elsewhere or suffering a significant adverse effect on their financial position.

The rule in practical terms

CONC 5.2A.12R frames affordability around the customer's ability to make repayments over the life of the agreement. The assessment should consider whether repayments can be made without the customer having to borrow to meet them, without failing to meet other obligations and without a significant negative effect on their overall financial situation.

The assessment must be reasonable and proportionate. Proportionate does not mean minimal. Under the factors in CONC 5.2A, the firm should consider the type and amount of credit, its duration, the frequency of use, the total amount payable and the potential for the agreement to affect the customer's financial situation adversely.

This creates a risk-based evidence standard. A low-value, short-duration agreement with no warning signs may justify a lighter assessment. A higher-cost or longer agreement, a large exposure relative to the customer's apparent means, or indicators of financial difficulty should prompt more information, more verification or a manual review.

Which firms and decisions are in scope?

The principal CONC 5.2A assessment obligation falls on the firm entering into the regulated credit agreement as lender. It should not be rewritten internally as a universal broker affordability duty. A broker may collect information or operate part of a lender's process, but the allocation of operational tasks does not remove the lender's responsibility for its own compliance.

The assessment is required before:

• entering into a regulated credit agreement; and
• significantly increasing the amount of credit available under an existing agreement.

Different provisions and exceptions may apply to particular products or circumstances. A firm should therefore map the exact Handbook perimeter for each product rather than assuming that a control designed for one credit product transfers unchanged to another. Our consumer credit compliance service helps firms test that product-by-product mapping.

A defensible proportionality decision

A strong file explains why the depth of the assessment matched the risk. The following four questions are more useful than a fixed document checklist.

1. What could make this agreement difficult to sustain?

Consider the amount and term, repayment pattern, total cost, existing exposure, repeat use and any information indicating that the customer is already under financial pressure. The assessment should look beyond the probability of contractual default.

2. What does the firm already know?

Relevant information can arise from the application, the customer's existing relationship, credit-reference data, bank-transaction data, previous payment performance or contact with the firm. Known contradictions and warning signs cannot be ignored merely because an automated policy does not request another field.

3. What needs to be verified?

CONC does not prescribe one verification method for every case. The firm should identify when declared information is enough and when the risk requires corroboration. Verification triggers should be explicit, consistently applied and capable of being tested through file review.

4. What outcome follows from the evidence?

The decision should be approve, decline or refer, with limits and conditions where relevant. A referral is useful only if a trained reviewer receives the underlying evidence, understands the exception and records a reasoned decision. A generic override code is not an explanation.

Evidence that should survive challenge

An affordability framework has to work at three levels.

Automated decisioning does not change the regulatory question. Model owners should know the purpose and limits of each input, how missing or contradictory data is treated, which cases are sent to manual review and what outcome testing says about the customers who were approved.

Common control failures

The most persistent failure is treating a credit score as a complete affordability assessment. A score can inform credit risk, but it does not by itself establish whether the customer can make the proposed repayments without undue financial pressure.

Other weaknesses tend to appear where policy, implementation and monitoring drift apart:

• the policy describes verification triggers that the decision engine does not apply;
• expenditure assumptions are used without testing whether they remain realistic for the relevant customer groups;
• repeat applications and exposure held elsewhere in the same group are not brought into the decision;
• manual overrides are common but the reasons are not analysed;
• early payment difficulty is reported as a collections issue rather than fed back into underwriting; or
• the firm monitors default losses but not signs of customer harm among accounts that continue to pay.

The Consumer Duty outcomes guide explains why payment performance alone is not an adequate customer-outcome measure.

What boards should ask

Boards do not need to review individual applications. They do need sufficient evidence to challenge whether the framework is producing sustainable outcomes. Useful questions include:

1. Which factors determine the depth of an assessment for each product, and when were those factors last validated?
2. What proportion of cases are referred or overridden, and which customer groups are over-represented?
3. Which outcome indicators would reveal unaffordable lending before losses or complaints become severe?
4. How quickly do policy owners respond when actual outcomes diverge from model assumptions?
5. Can the firm reconstruct a decision using the data and rule version that applied at the time?

A compliance review should test the end-to-end chain, not only the written policy. That means sampling approved, declined, referred and subsequently distressed accounts, reconciling the evidence captured against the decision made, and tracing findings into model or policy changes.

A focused remediation sequence

Start by mapping each product and decision point to the applicable CONC provisions. Reconcile that map to the live rules engine and manual procedures. Then select a risk-based sample that includes early payment difficulty, repeat use, high-cost cases and overrides. Record whether each file supports both the proportionality decision and the final lending outcome.

Findings should be ranked by customer impact and population size. Where a defect may be systemic, establish the affected population before changing the control so that historic outcomes are not lost. The remediation owner should define how effectiveness will be tested after implementation.

For firms that want an independent view of policy, decision logic and outcome monitoring, MEMA provides consumer credit compliance support. The first step is a scoped review of the product, the relevant rules and the evidence already available, not a generic affordability template.

Primary sources checked

• FCA Handbook, CONC 5.2A: Creditworthiness assessment
• FCA Handbook, CONC 6.7: Post-contract business practices

This explainer is general information, not legal advice. Firms should assess the rules and guidance that apply to their products, permissions and customer circumstances.