On 16 June 2022, the Financial Conduct Authority (FCA) wrote to the leaders of more than 3,500 lenders to remind them of the standards they should meet as consumers across the country are affected by the rising cost of living.

The ‘Dear CEO' letter to firms across the financial services sector, which included all regulated and non-regulated Buy Now Pay Later operators, was to remind them of their obligations regarding the fair treatment of customers.

The letter details findings from ongoing work on the treatment of customers in financial difficulty since the height of the COVID crisis, and highlights areas of concern with thirty-four lenders so far asked to make improvements.

Infinian, part of Quint Group, is the leading provider of affordability and vulnerability insights and data analytics for the gambling & consumer finance sector. Their Affordability Risk Model is key for aligning businesses to the FCA requirements issued from the ‘Dear CEO’ letter as the data reflects real life. The most recent quarter of data is showing an increase in the cost of living in line with other research looking at the cost of living crisis.

The Infinian Affordability Risk Model is a 2-solution approach to providing and utilising data to assist in assessing the affordability of individuals.

One of these solutions within the model is their ‘Matrix of Costs Table.’ This is a targeted, configurable look-up to estimate housing and essential cost of living figures for a wide variety of demographic groups. The model uses over 1.3 million unique credit applications, covering a 12-month period refreshed on a quarterly basis.

The data collated can be used to estimate costs on an ‘individual circumstances’ basis which is a key requirement highlighted by the FCA. The data includes:

1. Income (raw or decile or other groupings)

2. Employment status

3. Residential status

4. Single/joint household

5. Region

6. Number of dependants (FCA refer to child maintenance costs)

7. Any consolidated view from the above list

The sample size is over £1m from the last 12 months, which is bigger than the Office for National Statistics (ONS) and other data collated can assess financial resilience / financial vulnerability where a match is found.

Access to these insights is invaluable when it comes to dealing with identifying vulnerable, or not-so-vulnerable customers.

Infinian currently has seventeen clients using the model with remarkable success. One of these clients is a direct online lender, committed to providing affordable and responsible loans to UK customers. Their loans are tailored to the individual's circumstances, and they manually review all applications to assess affordability using the model.

The FCA did find examples of lenders having processes in place and providing the right support to their customers. However, most firms need to fully understand their customers’ individual circumstances better, so they can provide appropriate tailored support such as money guidance and free debt advice.

As the FCA has flagged numerous areas for improvement, particularly on data and monitoring outcomes, it expects firms to be able to demonstrate the steps that are being taken and mitigate the risks covered in the letter.

Changes in the FCA’s rules mean that current methods of assessing consumer vulnerability could be inadequate and this needs to be addressed by those in charge sooner rather than later.

The cost of living crisis has taken hold and with household bills expected to continue to rise into the autumn and winter, firms need to take action now to ensure they meet the FCA’s requirements and vulnerable customers can gain access to the help they need.