It does not matter how a loan is made – whether it is online, in person, on the phone or by text or email, the lender responsibility principles apply.
What are the lender responsibility principles?
Achieving compliance in an online environment
- how you comply with your obligations when you have limited interaction with borrowers
- what enquiries you make of borrowers online, and whether those enquiries are reasonable to achieve compliance when lending online.
Limited interaction with the borrower
- is vulnerable
- fully understands what information they need to give you about their financial situation
- is able to repay without substantial hardship
- is under significant pressure from others
- is able to understand what terms you are offering and the repayment commitments, and what may happen if they fail to meet their commitments.
Making reasonable enquiries
- properly assess affordability
- understand the borrower’s current financial commitments
- ensure the loan is suitable
- identify a potentially vulnerable borrower.
- the borrower is underage or of advanced age
- the borrower is under significant pressure to obtain the loan
- the borrower is seriously unwell or of diminished mental capacity
- the borrower has limited understanding of the English language
- the borrower does not understand the full implications of what they are agreeing to
- (if you are lending to a repeat borrower) the borrower’s circumstances have changed and information you have obtained from them previously is no longer reliable.
- automated processes that do not accommodate a range of borrower profiles, making assumptions about the borrower’s ability to repay
- systems that capture limited information about the borrowers’ circumstances or expenditure
- systems that rely solely on statistical data for calculating the borrower’s income and/or expenses without also obtaining information that would allow you to assess whether it is reasonable to use that data (for example, using statistical information about the expenditure of a single adult when the borrower has dependents)
- promoting or advertising loans via email or text to existing borrowers without checking whether they are meeting their existing obligations
- offering fast, automatic loans that do not allow you to be satisfied about the borrowers’ ability to pay.
Tips for lending online
- use plain English and avoid jargon where possible
- consider whether your target audience would benefit from key information and terms and conditions in languages other than English
think about having a video to explain key information and your application and lending process to those who are more comfortable with visual or audio communication.
- consider what information the borrower needs to provide in support of the application such as personal identification, confirmation and details of employment, copies of recent bank statements, information about expenditure and income and why the borrower wants the loan
- avoid using tick boxes because they prevent you from collecting tailored information
- have sufficient free-text boxes and options for borrowers to declare all expenses, to help you to get a complete picture of their financial situation, or to tell you in their own words why they want the loan rather than having a list of answers to select from.