How you should deal with customers of your business, before and after you’ve entered a contract with them.
We expect you to consider the needs and circumstances of your customers before giving them advice or recommendations. This includes considering their income and expenditure to determine whether the product you’re recommending is unaffordable for them.
You should also think about whether it could cause significant harm if they cannot keep up with repayments.
We don’t expect you to have complex affordability models to do this. You can do this proportionately by using lender-provided tools and by recording a clear, concise rationale.
Before you enter into an agreement with a customer, where you have responsibility for providing information, you must:
- Explain key features of the credit agreement clearly. This includes things like any interest the customer will have to pay and any consequences for the customer if they fail to repay. This will allow the customer to understand the risks and make an informed decision on whether they can afford the credit you are offering.
- Set out any fees that they will need to pay for your services, and put this in writing before the agreement starts.
- Disclose commission or other remuneration if it could mean you are not impartial or could shape the customer’s decision. You must do this before the agreement starts.
After the sale, you continue to have ongoing responsibilities to your customers. This includes things like:
- Continuing to provide required information after the credit agreement is made. Your obligations will depend on whether you or the lender have taken responsibility for this. In these cases, customers still need to be provided with specific information such as a copy of the contract they have signed.
- Handling fees and refunds correctly. This includes understanding and complying with any legal responsibilities you have taken on, and refunding broker fees where no credit agreement is entered into within the required period.
Case study 6: How small brokers can identify unsuitable or unaffordable lending
Context
A small credit broker must take account of their customers’ needs and circumstances before they provide advice or recommend a product – by doing so they can avoid causing foreseeable harm to customers in their target market.
Scenario
A small credit broker that specialises in small higher cost loans is considering how to meet expectations about its role in responsible lending.
As part of its credit broking service, it recommends customers borrow from a lender on its panel. Many of the firm's customers are referred by lenders who have already refused their credit application.
Good practice example
Customers being refused credit could indicate that the requested borrowing was not suitable or affordable. Alongside its recommendation, the firm makes the customer aware that it will process the application if they wish, but the lender may refuse the application. This might be recorded on their credit file, damaging their ability to seek credit in the future. The firm shares details of the Money and Pensions Service’s Money Helper pages, so that the customer can access money guidance and free debt advice, if they need it.
Why this matters
Consumers may lack experience or expertise when seeking credit, so it’s important that firms consider their customers’ needs and circumstances when giving advice or recommendations. This supports good outcomes for customers and helps them achieve their financial goals by making decisions that are in their interests.
