Good Practice Lending Guide

We have created this Good Practice Lending Guide with our partner Jaywing bringing their extensive expertise in best practice for managing lending and credit risk. The guide includes general industry best practice alongside examples proportionate to the operations of the different community finance providers.

What does this guide cover?

  • Credit risk activities that impact the customer journey ​
  • Governance and regulatory compliance​
  • Management information (MI) to support informed decision making ​

Why have we created this?

  • Through our work with lenders, we have seen a demand for support and the sharing of best practice ​
  • We want to provide the sector with relevant and practical guidance that can be implemented as appropriate​

How can this guide be used?

  • Enhance lending practices or identify gaps for existing lenders​
  • Support new entrants to set up appropriate practices needed to succeed ​

You can click into each section for a short summary of each module.

RM1: Credit risk appetite

This module describes how organisations should define their (credit) risk appetite. The risk appetite describes the different risks that an organisation is (and is not) willing to accept as part of its lending strategy. 

RM4: Lending policy risk

This module describes how to formulate a lending policy in line with an organisation’s risk appetite. 

RM7: Consumer Duty and complaints handling

This module describes how organisations should treat customers to comply with the FCAs principle of “Treating Customer’s Fairly” and the more recent FCA principle of “Consumer Duty.” 

RM10: Portfolio MI

The Portfolio MI module explains the types of portfolio level reporting that is required to understand how the business is performing over time. 

RM13: Governance

This module covers the governance frameworks and forums that should be in place. This also covers the process for reviewing, updating and internal audit/sampling to ensure adherence to policies. 

RM2: Proposition design

This module describes how to put together a proposition for a credit product that meets business objectives, aligns with an organisation’s risk appetite, and meet the needs of customers. Principles for setting credit limits and risk-based pricing will also be covered. 

RM5: Lending policy affordability

This module describes the different approaches that can be adopted for calculating customers’ income and expenditure. 

RM8: Credit Reference Agency

This module describes what a credit reference agency (CRA) is, how CRAs operate and the products and services that they provide. 

RM11: Arrears and collections strategy

This module explains how customer should be dealt with at various stages of their relationship with a lender. It covers the full arrears lifecycle from pre-delinquency through to arrears, default, write-off and post write-off recoveries. 

RM14: Provisions and write off

The different ways to account for provisions for bad and doubtful debts (impairment) are presented in this module, with reference to the specific requirements for some types of lenders. 

RM3: Application process

This module looks at the application process and customer journey from initial enquiry through to completed application. 

RM6: Customer verification and fraud prevention

This module covers Know Your Customer (KYC) requirements and fraud prevention. 

RM9: Model monitoring

This module covers the requirements for effective scorecard monitoring to ensure that the predictions made by the scorecard continue to be accurate in line with their design parameters. The PRA’s principles for Model Risk Management (MRM) are also covered here. 

RM12: Data maintenance and retention

This module covers the data infrastructure that organisations need to support credit risk management activities while remaining compliant with GDPR data protection principles via an appropriate data retention policy. 

RM15: Debt advice and financial literacy

This module details what good practice looks like in terms of both referral to debt advice services for customers with debt problems and the information and tools that are available to customer who may need financial advice.