Chris Woolard, former interim-CEO at the FCA spoke at the Westminster Business Forum policy conference: Next steps for consumer credit: regulation, responsible lending and the future makeup of the retail lending market event held in September. He made the point that affordability is the biggest issue with the currently exempt Buy-Now-Pay-Later (BNPL) sector. Chris emphasised on the CONC 5.2A distinction between credit risk and affordability risk with the latter being of paramount consideration to ensure that lenders (like BNPL providers) make responsible lending decisions. It is anticipated that the need to maintain a frictionless customer experience and the application of affordability assessment rules to BNPL providers, once brought into the regulatory perimeter, will lead to a widespread adoption of Open Banking solutions.
It is to be noted that Open Banking is not a perfect solution in all circumstances and has ‘blind spots’ when solely relied upon to conduct affordability assessments. In direct engagements with the FCA through FCA authorisation engagements and through a recent FCA liaison meeting with a Senior Manager at the FCA’s Retail Lending Authorisations Department, it has been communicated by the FCA that the utilisation of Open Banking to operate a fully automated affordability assessment process can be problematic when dealing with self-employed individuals, individuals with fluctuating incomes and joint account users as a fully automated affordability process typically is less likely to accurately categorise income and non-discretionary expenditure for these groups of consumers to drive the making of responsible lending decisions.