All assessments should involve a consideration of the potential for the credit commitment to adversely impact the borrower’s

financial situation

to adversely impact the borrower’s

financial situation, taking into account the

information that the creditor is aware of at the

time the credit is granted.

� The creditor must assess if the borrower can

undertake the credit agreement in a

sustainable manner without him incurring

financial difficulties or experiencing adverse

consequences. They must show that they have

disposable income and are likely to be able to

maintain this over the course of the loan.

� ‘Sustainable manner’ means the borrower can

pay it back without incurring or increasing

indebtedness, without having to realise security

� The OFT would not consider repayments to be

unsustainable if the borrower missed an

occasional payment. If they did, the creditor

would not be expected to extend the term of

the loan to allow for this, but would allow for

payments to be made up at a later date, but

within the original term of the loan. Also, the

creditor would not be expected to increased the

total amount payable to unsustainable levels.

� Where the assessment of affordability indicates indebtedness, without having to realise security

or assets, and without undue difficulty, and

without having to borrow further to meet the

repayments. (In the absence of changes to

personal circumstances which were

unforeseeable at the time the credit was given).

� Creditors should assess affordability and

assess the risk of the credit sought being

unsustainable for the borrower in question.

Borrowers should be encouraged to undertake

their own assessment, as well as that of the

creditor.

Where the assessment of affordability indicates

that the borrower is unlikely to be able to meet

the repayments in a sustainable manner, the

credit should not be given, or the borrower

should be offered a smaller amount which is

sustainable.

� In certain circumstances, (such as where there

is a short period where there will be reduced

income, but it is known when this will be

rectified), the creditor may grant credit. This

limited exception is less likely to apply where

the reduced income period is likely to span an

extended period.

� Creditors should take account of future financial

commitments and must take reasonable steps to

obtain this information, (i.e. regular outgoings). The

creditor must request this information, but cannot

be held culpable if the information given is not

correct, but the creditor, (acting reasonably) was

not aware of this.

� If the creditor is aware of a future event or

� Creditors, upon request, should be able to provide

the OFT with information relating to the

practices/procedures used to assess affordability.

� Any supplementary income (such as overtime or

bonuses) are not guaranteed so creditors should

exercise caution. Basic pay only is ‘guaranteed’.

� When assessing expenditure, it must be taken into

account that some expenditure varies. Some

household costs differ month on month, or are If the creditor is aware of a future event or

commitment which may impact the borrower’s

ability to make payments (such as impending

retirement, or a known end date to employment),

they must take this into account, but would not be

held responsible if this was not known at the time

that the assessment of affordability was

undertaken.

� Creditors can use various types of sources of

information, (for example, records of previous

dealings, evidence of income and expenditure,

information gained from the borrower, either on the

application form or from personal contact).

Creditors can use discretion in deciding types and

sources of information relating to the practices and

procedures that they employ in assessing

affordability.

household costs differ month on month, or are

dependent upon the time of year.

� Creditors who do not require documentary evidence

of income and expenditure, should ensure that

whatever means they employ is sufficient to make

the assessment. Self – certification of income, in

general is not acceptable in respect of long term

credit agreements.

� The OFT accepts that the level of scrutiny required

for a small sum may be less than for a large sum,

but that sustainability is still relative to the

borrower’s financial situation.

� The creditor must take into account if the borrower

is vulnerable or lacks the mental capacity to be able

to understand the information and make an

informed decision.

� Failing to establish and implement clear and effective policies and procedures for the reasonable assessment of

affordability.

� Failing to undertake a reasonable assessment of affordability in an individual case.

� Failing to consider sufficient information to be able to reasonably assess information, i.e. not verifying hard copies of

income such as payslips.

� Failing to undertake an assessment or using insufficient information obtained from the borrower.

� Basing the credit on the value of the collateral only. The borrower must be assessed on affordability. Lending on the

property value only is unacceptable.

� Failing to assess affordability at all, or granting credit if the creditor knows or reasonably suspects that it is

unsustainable.

� Lending to a borrower to make a repayment on a debt. The creditor should advise the borrower to seek assistance from

a non-profit provider of free money advice.

� Inappropriately encouraging borrowers to increase/roll over existing debt to unsuitable levels. Debts can be

consolidated in circumstances where the borrower’s overall financial position is not made unsustainable.consolidated in circumstances where the borrower’s overall financial position is not made unsustainable.

� Encouraging the borrower to take out a loan for a higher amount than he requests, when the assessment of

affordability is known, or suspected, that repayment is unsustainable.

� Failing to take reasonable, adequate steps to ensure that the information on a credit application with regard to

affordability is complete and correct. Question anything which is unclear or unrealistic.

� Completing all or part of the application for credit for the borrower, unless you have their consent. In this case, he must

be given the opportunity to check that it has been completed accurately before signing the credit agreement.

� Accepting an application for credit when it is known or suspected that the borrower has not been truthful in completing

the application, with regard to the assessment of affordability. If information is inconsistent or contradictory to other

available information.

� Inducing or encouraging a borrower to falsify details regarding affordability.

� Distorting or falsifying details relevant to an assessment of affordability, with or without the borrower’s consent.