What Affordability Checks Should a Lender Carry Out?
Before giving credit — or significantly increasing it — a lender has to satisfy itself that the borrower can repay sustainably. The FCA’s rules, set out in CONC 5.2A, do not prescribe a single fixed checklist. Instead, they require checks that are “reasonable and proportionate”. That deliberately vague phrase has been the subject of countless Financial Ombudsman decisions and shapes how affordability complaints are decided.
Check your agreements on Recoup, our claim partner’s site
The basic legal duty
CONC 5.2A.4R requires the lender to undertake a creditworthiness assessment that includes consideration of:
- The risk to the borrower of not being able to make repayments (sustainability), not just the risk to the lender of not being repaid.
- The borrower’s income, where relevant, and any reasonably foreseeable changes to it.
- The borrower’s non-discretionary expenditure — essential living costs, existing credit commitments, and any reasonably foreseeable changes.
- Any other relevant indicators on the borrower’s credit file or in information they have provided.
Crucially, this duty is owed at the start of the credit relationship and again at any point where the lender materially changes it — a credit limit increase, a refinance, a top-up loan. It is not a one-off check.
What “proportionate” means in practice
Proportionate checks scale up with risk. The FCA gives several factors that should ratchet the depth of the check:
- Size of the credit — a £200 short-term loan and a £20,000 personal loan should not have the same level of scrutiny.
- Term of the credit — longer-term commitments need a forward-looking view of affordability, not just a snapshot.
- Cost relative to income — repayments that take up a larger share of income demand more thorough verification.
- Borrower’s circumstances — known low income, irregular income, prior arrears, or vulnerability indicators all push the bar higher.
- Repeat borrowing — if the borrower is taking yet another loan from the same lender, the lender should look harder at why.
What lenders typically check
A typical affordability assessment for unsecured credit will combine some or all of the following:
- Declared income and employment status, sometimes corroborated against bank account data or payslips.
- A credit reference agency search showing existing debts, payment history, defaults and CCJs.
- An estimate of essential expenditure, often using ONS averages adjusted for household size.
- Open Banking data, increasingly used by newer lenders to verify income and spending directly.
- Internal data on any prior account history with the same lender.
A check is not necessarily inadequate just because it relied on declared figures or modelled expenditure. Problems usually arise when the lender ignored evidence already in front of them — an obvious gap between declared income and bank activity, recent defaults on the credit file, multiple short-term loans cycling through the borrower’s account, or a pattern of arrears.
Where checks commonly fall short
The Financial Ombudsman has found lenders failed to carry out reasonable and proportionate checks in cases where:
- The lender relied on declared income only, despite obvious affordability red flags on the credit file.
- A credit limit was increased automatically based on payment history alone, with no fresh review of the borrower’s wider position.
- The lender’s own data showed signs of strain — returned direct debits, late payments, persistent overdraft use — but more credit was extended anyway.
- A borrower with an active payday loan or doorstep loan was given another, with no scrutiny of the cycle of repeat borrowing.
- No verification was done at all where verification was clearly warranted, particularly for larger or longer-term credit.
- The lender used an income-and-expenditure assessment that produced a positive disposable-income figure that was implausible given known facts.
How this connects to a complaint
How the Financial Ombudsman handles unaffordable lending complaints.
Related guides
- What is unaffordable lending?
- The CONC rules on affordability — a plain-English guide
- Section 140A and the unfair relationship test
- What evidence do I need?
- Do I have an unaffordable lending claim?
Check If You Could Be Owed Compensation
You may be eligible to complain if a lender gave you credit you couldn’t afford. Start a free check in minutes — no paperwork needed. No win, no fee if you choose to proceed.
