Affordability, Creditworthiness and the FCA: Why January Is a Regulatory Flashpoint
January has become one of the most important months in the FCA’s supervision of consumer credit firms. While affordability and creditworthiness are permanent regulatory themes, January is where weaknesses are most likely to surface — and where the regulator can see, in real time, whether firms’ assessments were robust or overly optimistic.
For the Financial Conduct Authority (FCA), this period provides a natural stress test. Customers who appeared affordable in November may struggle to meet repayments by mid-January, particularly if festive borrowing, reduced income or unexpected costs have narrowed their financial headroom. When that happens at scale, the FCA’s attention follows.
Why January exposes affordability weaknesses
Affordability assessments are designed to consider whether a customer can repay credit in a sustainable way. January is where sustainability is tested.
Post-Christmas financial pressure is both predictable and recurring. Customers may have relied on multiple credit products, deferred payments through BNPL arrangements, or stretched budgets to manage seasonal costs. In January, the gap between income and outgoings becomes clearer, and early missed payments often follow.
From the FCA’s perspective, this does not automatically mean an assessment was flawed. What matters is whether firms properly considered foreseeable risks, built in appropriate buffers, and avoided assumptions that relied on best-case scenarios.
Where large numbers of customers move into difficulty shortly after borrowing, the regulator is likely to question whether affordability was assessed conservatively enough.
Affordability versus creditworthiness
One area the FCA continues to challenge is confusion between affordability and creditworthiness. While related, they are not the same.
Creditworthiness includes affordability, but also encompasses the likelihood of repayment in full and on time. January often highlights where firms have focused too narrowly on income and expenditure snapshots, without considering broader indicators such as financial resilience, existing credit commitments or behavioural risk.
The FCA has made it clear that repeat borrowing, short intervals between applications, and reliance on refinancing or consolidation can all indicate heightened risk. January data often reveals these patterns more clearly than any other month.
For brokers, this is particularly important. The FCA expects intermediaries to understand how the products they introduce are assessed and to avoid encouraging borrowing that merely defers financial stress rather than addressing it.
The role of automation and data
Many consumer credit firms rely heavily on automated affordability and creditworthiness models. While automation brings efficiency and consistency, January is when the limitations of those models are most visible.
The FCA is increasingly interested in how firms test and validate their models against real outcomes. If customers consistently fall into arrears soon after lending, firms should be able to explain how models responded — or failed to respond — to seasonal pressures and changing behaviour.
The regulator does not expect firms to predict every individual outcome, but it does expect ongoing monitoring and adjustment. Static models that are not reviewed in light of post-Christmas performance are unlikely to meet supervisory expectations.
Vulnerability and affordability intersect
January also highlights the close link between affordability and vulnerability. Financial stress can itself create vulnerability, even where no formal indicators were present at the point of application.
The FCA expects firms to recognise that vulnerability is not fixed. Customers who were not vulnerable when credit was granted may become vulnerable shortly afterwards. Where this happens, firms must respond appropriately, including through tailored forbearance and support.
Affordability assessments that fail to consider how customers might cope with short-term shocks are increasingly seen as incomplete. January outcomes provide the FCA with clear evidence of whether firms have thought about this in a meaningful way.
MI, governance and early warning sign
From a supervisory standpoint, January is also a test of governance. The FCA will look closely at whether firms identify emerging affordability issues early and whether senior management are engaged in responding to them.
Management information plays a central role here. Firms should be able to demonstrate that they monitor early arrears, missed payments, repeat borrowing and customer contact trends, and that this information informs decision-making.
Where MI is delayed, overly aggregated or not challenged at senior level, the FCA is likely to view this as a governance weakness — particularly if customer harm follows.
Common pitfalls the FCA continues to see
Despite the predictability of January pressures, the FCA continues to observe similar issues across the market. These include over-reliance on affordability assumptions that do not allow for seasonal stress, insufficient monitoring of repeat borrowing, and slow responses when customers begin to struggle.
Another recurring issue is the separation of affordability from collections and forbearance teams. Where insights from January arrears are not fed back into lending decisions, firms miss an opportunity to improve outcomes and reduce future risk.
Preparing for January — before it arrives
Firms that perform well under January scrutiny tend to treat the month as a planned risk event. They review affordability models using prior-year data, stress-test assumptions, and ensure clear escalation routes exist when customers show early signs of difficulty.
They also recognise the role of brokers and distribution partners, ensuring messaging and recommendations do not encourage borrowing that is unlikely to be sustainable in the new year.
Above all, they can explain to the FCA not just how affordability is assessed, but how it performs when customers are under pressure.
How ALPH supports firms on affordability and creditworthiness
ALPH Legal & Compliance supports consumer credit lenders and brokers with affordability and creditworthiness reviews, model governance assessments, MI and outcomes testing, and post-January assurance work. We help firms understand what their data is really telling them — and how to use it to strengthen both compliance and customer outcomes.
January is not just another month for the FCA. It is one of the clearest indicators of whether affordability frameworks are working as intended. Firms that prepare for that scrutiny are far better placed to manage both regulatory and reputational risk.