UP IN THE AIR
WHEN IS IT APPROPRIATE TO LEND TO THOSE WITH CCJS?

CCTA

Earlier in the magazine we asked Lex Jones of the Registry Trust to talk a little more about the importance of the work that they do on county court judgments (CCJs).

The CCTA is a strong supporter of their Get Satisfaction campaign to ensure that the judgments are kept up to date. When CCJs are satisfied it is important that there is a record. This should be win win for both the customer and lenders.

The guidance around the Consumer Duty makes clear that a lender is looking to deliver the best outcome for a customer when they make sure information is passed along about a CCJ.

Looking into the future, the sign that a customer has corrected their position, that they have taken steps to put things right is surely an indication that they may be a suitable customer in the future. From a behavioural perspective, in terms of credit risk, a lender might view favourably someone that has not just let time run down on their CCJ.

However, this is only relevant if the regulator doesn’t close lending to those with CCJs. This was one of the issues that emerged from industry discussion earlier in the year. It became a concern that the FCA were questioning if it was right to lend to people that had CCJs.

While this was an issue that emerged from informal conversation amongst members, we said at the time that we would pursue this further with the FCA. For us, the concern was that this looked like a misunderstanding of the nature of the market that many high-cost lenders serve.

Our view has always been that, especially in sub-prime, customers may well have had a CCJ. In a statement that we were told we could share with the membership we were assured that the FCA’s position is not that you cannot lend to a customer with a CCJ.

They said to us, “A firm should have regard to any information of which it is aware of at the time the creditworthiness assessment is carried out that may indicate that the customer is in, has recently experienced, or is likely to experience, financial difficulties. The fact that a customer has a CCJ is likely to be relevant to this assessment.” Hopefully that provides some assurance that there is no outright ban.

They went on, “The extent and scope of the creditworthiness assessment, and the steps that the firm must take to satisfy the requirement that the assessment is a reasonable one, based on sufficient information, are dependent upon, and proportionate to, the individual circumstances of each case. The presence of a CCJ may be a factor suggesting that a more rigorous affordability assessment is necessary.”

Now the quicker amongst you may realise that this is also not an endorsement of this lending. There is enough in that explanation, with a mention of proportionality, that supervisors could use to close this down while not imposing a full stop.

There is also a deeper question as to whether CCJs are actually an indicator of a problem around affordability. What does a CCJ say that alters whether someone can afford to pay back a loan? Especially if the CCJ is reasonably old. Affordability is not about whether the borrower will pay back, it is about whether they can pay back.

A discussion for another day, maybe.

For now, lenders should consider the advice from the FCA that a CCJ is a flag but not a reason for decline. Lenders need to show that they take this matter as a reason to step up their affordability assessment. It also reinforces the need for CCJ information to be kept up to date by lenders.