Lenders must be prepared for FSA to take more action
Laurence Hamilton, Equifax marketing and performance director, believes this latest action signals an increase in scrutiny by the regulator, which is only likely to get stronger.
He said: “Whilst this latest FSA action relates to failings that occurred from October 2004 to the end of 2009, the lack of demonstrable affordability assessment is something that the industry knows the FSA, and its successor the FCA, will be examining much more closely in the future.
“The FSA found that the mortgage provider was unable to always demonstrate that the mortgages it sold were affordable and this, undoubtedly, has to be a key focus for lenders now.
“The FSA, in the MMR released in October, has called for making proof of income to assess consumer affordability central to lending practices going forward.
“The majority of providers in the mortgage market already follow best practice in collecting income data to meet this requirement.
“But we believe this latest action by the FSA highlights the importance of verifying income data to meet responsible lending regulation.
“Equifax analysis has proved that verified income provides an immensely powerful indicator of affordability, with the potential to improve credit risk performance by up to five times.
“The challenge for credit providers is accessing verified income data as an integrated component of new credit application assessment.
“Income data is already being collected by mortgage providers. We are, therefore, working with these and other consumer finance organisations to facilitate sharing of this valuable intelligence to give them the ability to verify, instantly and reliably, information provided on an application form.
“Our new suite of products enables organisations to comply with the new regulations as well as improve lending performance, by giving them access to the widest possible pool of income data.”
Equifax is working with all sectors of the consumer finance industry to enable sharing of declared and verified income, which is accessible as an integrated component of application and customer management processes, eliminating the need for additional income proof.
Hamilton added: “Having this data integrated into risk management processes means demonstrable compliance can be achieved through enhanced customer service levels.
“Plus, the significant improvement in performance that can potentially be achieved through the use of verified income data goes to the heart of reducing bad debt risk.”