Affordability high on the agenda for UK organisations despite sporadic best practice, research reveals

The New Affordability 2 (Book)Despite the rising importance of affordability assessments’ for UK organisations, less than half (40%) of risk leaders rate themselves as very effective at identifying customers who are financially vulnerable, according to a major new study from Callcredit Information Group.

The New Affordability study of UK risk and customer experience managers finds that organisations increasingly see it as their duty to understand a customers’ ability to pay for their services. With the large majority (72%) of risk leaders believing that they have a social responsibility to prevent customers from over-stretching themselves financially.

As a result, 67% of risk leaders reported that they are already carrying out affordability assessments in some form and 27% are planning to introduce these checks within the next 12 months. Yet, only a quarter (25%) rate themselves as extremely effective at identifying the warning signs that a customer is likely to be heading for financial difficulty.

Lack of senior management and board buy-in (64%) were identified by risk leaders as the main challenge to improving affordability assessments’. In addition, the findings revealed a number of other factors further hindering improvements to affordability assessments, including managing the consequences of Brexit (56%) and budget or cost implications (52%).

Eamonn Tierney, Managing Director – UK Business Development, Callcredit Information Group, commented: “Our research shows that UK organisations are paying more attention to how they assess consumer credit affordability. But, with current levels of affordability checks varying per organisation, more should be done to ensure it becomes standard practice. Without a complete view of a customer, organisations can’t have full confidence in the lending decisions they are making.

“The future of affordability is about verifying whether a credit applicant can afford new credit via a thorough evaluation of their income, outstanding debts, cost of living and general expenditure to understand how this new debt relates to their disposable income. Getting this right will not only help meet regulatory requirements but also reduce over indebtedness, drive business growth and crucially protect consumers from financially overstretching themselves.”

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Research Methodology 100 UK respondents for managing consumer credit risk, and 100 UK respondents responsible for managing the customer experience completed an interview during July 2016. The research was carried out by London-based research agency Loudhouse.