The Analysis Comment
A sharp edge
Amidst rising debt levels, does the industry need to strike a new balance between credit risk and affordability?
Anthony Sharp Proprietor, Anthony Sharp Associates
asa.associates@
virgin.net
I am writing this short article just after hearing once more, on the BBC News, of the increasing concerns expressed by government, the Bank of England, and several consumer bodies of the apparent considerable growth, once again, of cheap and easy lending. It is astonishing to me that we human
beings are so loathe to learn from the past. But then, in this arena, is it perhaps the old battle between sales and collections with the new bright sparks, who apparently know so much better than their predecessors in 2008, who do not wish to be reminded of such things as financial crashes?
Research I am extremely pleased to hear that the Financial Conduct Authority (FCA) is in the process of researching the attributes of a lender’s credit risk against a consumer’s affordability. They are indeed two very different things
and each has its part to play in ensuring responsible lending. In the motor-finance sector for instance –a
sector that is attracting much attention from the FCA at the moment – a lender may well consider the value of the vehicle on hire purchase or lease, which, if the agreement defaults, can always be repossessed, as their main credit risk that needs to be considered, rather than whether the individual can afford the repayments in the first place. It is known that a number of lenders are beginning to play
fast and loose with individuals’ affordability checks – nothing new there then.
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It is astonishing to me that we human beings are so loathe to learn from the past. But then, in this arena, is it perhaps the old battle between sales and collections with the new bright sparks, who apparently know so much better than their predecessors in 2008?
I am very much hoping that, in due
course, the findings of the FCA will produce some sensible rules that will strike the proper balance, taking both factors into account.
Standing up It does not only relate to motor finance, guarantor loans are another sector of interest and, of course, mortgages, although they have their own comparatively new and strict lending rules. I have said it before in this magazine and
I do not apologise for repeating it: if a newly implanted pole cannot stand up on its own, then you do not support it, you start again and build better foundations so that the next pole you place in the ground will stand up properly. If, as a country and an industry, we want
to encourage responsible lending, then serious attention needs to be taken about the creditworthiness of the individual, for the consumer, as well as the lender’s sake. It is certainly perfectly acceptable to
decline an application on its lack of merit, and the industry must surely have the courage to do just that, rather than hunt around for something on paper that may make the application look safer. Not least because this may only take the lender into account.
Moral responsibility I believe that there should always be a moral responsibility in selling and lending, and this should be exercised if we want our industry to improve and maintain a worthwhile reputation. CCR
www.CCRMagazine.co.uk November 2017
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