Personal Loan Education

11/04/2011

A loan will not be unsuitable if it meets the consumer’s requirements and objectives, and the consumer has the capacity to repay the loan without experiencing substantial hardship.

The Financial Ombudsman Service issued a circular to members setting out its view of financial service providers’ responsible lending obligations under the National Consumer Credit Protection Act last week.

Lenders are recommended to look at the consumer’s source and level of income, and the length of their employment. It recommends that inquiries cover the consumer’s fixed expenses, repayments to other loans, variable expenses, credit history, age, number of dependents, assets, and any foreseeable change to the consumer’s financial situation.

The Ombudsman said that, as a minimum, the credit provider would have to see evidence of capacity to pay, such as verification of income by reference to payslips or, in the case of the self-employed, tax returns and bank statements.

The Ombudsman said: “This requirement is not scalable but rather a mandatory consideration.”

Source: Banking Day