A few weeks ago, I used this blog to welcome Mark Carney’s warning that families are seriously over-indulging on car finance and credit card debt. And this week, the Castlight team were delighted to see two pages of the The Sunday Times newspaper reporting on Bank of England initiatives to demand more detailed information from lenders on how they approve loans.
Aimee Donnellan’s article goes on to report that the “Financial Conduct Authority estimates that 3.3 million people are stuck in persistent credit card debt, juggling their money to pay the interest without ever reducing the debt owed.” This is a seriously worrying statistic. We must not repeat the disastrous mistakes of 10 years ago, when millions of people were plunged into misery by the global credit crunch.
We Agree with Mr. Carney
Mark Carney is right to be concerned and we wholeheartedly applaud his stance and his sense of urgency as he moves to accelerate his initiative to publish results of a consumer spending health check.
Debt and over-extension of credit is, of course, a national and corporate concern. But where it really hurts, and sometimes actually destroys, is at a personal level. By challenging banks to drive down deeper into a customer’s ability to repay loans, his or her “affordability”, Carney is getting to the very root of the problem.
Affordability is Nothing New
We know this, because at Castlight we have been working on “affordability” for 2 years. It’s simply not the same as a credit check, which supplies your credit and payment history and allocates a credit score. An assessment of a person’s affordability is so much more than a score. Our Affordability Passport has been developed to build a 3D profile of a person, built on thousands of transactions, and categorised across hundreds of areas of daily life. It gives a lender a full picture of a customer’s income, non-discretionary and discretionary spending and what’s left at the end of the month. The API which allows us to do this is already built, security tested and out there. Early adopting banks and brokers are already using it and will have felt pretty smug when they read The Sunday Times over their tea and toast at the weekend. They’re a step ahead of the Bank of England. Their customers haven’t just been credit checked or even stress tested, they have had their “affordability” analysed and have “affordability passports” to demonstrate that they are fit to travel on the financial journeys they have chosen.
We promise in our strapline to deliver a “safer financial world” and we mean it. As Alex Brazier, the Bank of England’s director for financial stability warns of the risk of lenders slipping into a “spiral of complacency”, we mean it more than ever.