The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Following a recent implementation plan review, we are seeing a number of priorities for firms which tend to align with key themes of regulation in recent years.

These include affordability assessments, tailored support to customers in financial difficulty or with signs of vulnerability, and ensuring that consumers understand the products they are purchasing and can interact effectively with firms.

How are credit risk teams preparing?

Affordability

Organisations are enhancing their affordability strategy to monitor changes throughout the customer lifecycle and not only limit these to originations decisions and collections events. There is also an increasing requirement to identify customers who are in financial difficulty and ensure that tailored support is provided.

Lenders are seeking better sources of expenditure data so that they can identify changes in energy payments or mortgage payments and engage those customers with an increased risk of entering financial difficulty. Credit bureau data is being used to increase understanding of a customer’s financial resilience.

Vulnerability

The collection and actioning of information on a customer’s non-financial vulnerability is also seen as important in evidencing how firms are ensuring that services are fair and accessible for all. Data such as physical disabilities and support needs can be used to improve customer experiences to demonstrate fairer access to finance.

Simplified or blanket communication approaches are unlikely to get the desired outcomes, and a test and learn approach is required to ensure customers react positively and engage appropriately.

Product Design

Firms are required to review their products and ensure that these meet the needs and objectives of the target market. This requires firms to identify the target market and regularly review to ensure that the needs are continuing to be met.

Lenders are increasingly looking to take a data-led approach to meeting this need through integrating credit risk expertise and market-level data to analyse consumer segments and customer credit trends.  Lenders are also increasingly looking to use credit risk knowledge and market data to assess market size, consumer segments, and credit repayment behaviour to improve their decision-making processes.

Monitoring

There are new monitoring requirements brought about by Consumer Duty to ensure that the requirement to regularly review and measure customer outcomes is being met. Firms need to ensure that any new reporting measures consumer outcomes across multiple customer touchpoints and that the insight allows clear identification where consumer duty rules may not be fully met.

Some lenders have started building enhanced monitoring of consumer behaviour with a focus on financial and behavioural impacts wider than the lender/customer relationship. This helps demonstrate performance against the “foreseeable harm” and “achieving financial objectives” cross-cutting rules.

In summary, firms need to focus on demonstrating good customer outcomes, gaining transparency, confidence, and control, providing tailored support to customers in financial difficulty or with signs of vulnerability, ensuring that products meet the needs and objectives of the target market, and monitoring consumer outcomes across multiple touchpoints.

Firms are looking to enhance their affordability strategy and pre-delinquency capabilities, and they are seeking better sources of expenditure data to engage those customers with an increased risk of entering financial difficulty. Market-level data is being used to assess market size and consumer segments, and to analyse credit and repayment performance.

You can read more about how Consumer Duty is impacting credit risk here on Experian’s website: Consumer Duty regulation – what does it mean for credit risk?