Responsible lending means offering the right terms of credit to the right customer.
– We are able to do this based on our thorough processes and frameworks, says Andrew Karmy, Chief Credit Officer at EnterCard Group.
In 2018, 400 000 Swedes had debt that had been registered at the Swedish Enforcement Authority. Out of these, nearly 100 000 had reached a level of over-indebtedness such that they were expected not to be able to pay off their debts within 20 years.
EnterCard Group takes responsible lending seriously, in order to prevent their customers from getting into unmanageable debt. When a customer applies for a loan or credit card, their income, living costs and the costs of servicing other credits they have are analysed. Based on these and other credit checks, approximately half of all credit card applications and two thirds of all loan applications are rejected due to the risk of the applicant not being able to manage future payments.
“If we do not act responsibly in our lending, everybody loses”.
– As a lender, it is our responsibility to assess the customer thoroughly. This is to ensure that they are able to pay their instalments. To us, it is about meeting our stakeholders’ expectations, including our customers, our shareholders and our colleagues. Nobody wins if we act irresponsibly, says Andrew Karmy and adds:
– If we do not act responsibly in our lending procedures, then in the long run everybody loses. If our customers are left with debt that they cannot manage, it affects us negatively in the form of credit losses. But this is also about social responsibility. Over-indebtedness is a social issue, affects the fabric of society and also can have an impact on a country’s economic growth.
According to Andrew, a consumer loan can be a good alternative when refinancing, or to cover sudden costs like renovation or household damages.
– Our lending is always based on the borrower’s ability to manage the loan. We never approve a loan application without a credit check, says Andrew.
EnterCard Group stresses the importance of helping borrowers who have faced sudden loss of income – caused by for example illness or divorce.
– We have analysts working with models to identify and optimise risk. We also have teams working operationally, meaning they are in direct contact with customers. If a customer is having difficulties paying their instalments, we work together with them to find a suitable solution. Personal contact is an important component in responsible lending, says Andrew.
The five most important factors to achieve responsible lending according to Andrew Karmy:
1.Transparent products – the credit process must be transparent and not marketed in an intrusive way.
2.Focus on being responsible internally – it is pivotal that you build a culture where all employees act responsibly.
3.Robust processes on decision-making procedures and risk analysis.
4.Good control routines.
5.Processes to help customers in financial difficulties.