ABCUL Guest Blog: Strengthening Affordability Assessments in Credit Unions

Wednesday 4 March 2026

Andrea, can you explain the origins of this research and why there was a need for a dedicated affordability guide for credit unions?

The research began from a recurring issue: while credit unions are subject to the same overarching regulatory expectations around affordability as other lenders, these expectations are not always articulated in a way that reflects the unique institutional nature, lending models, and member relationships that define the sector.

Over two years, I conducted comprehensive legal and policy research alongside sustained dialogue with sector stakeholders, including representatives from credit unions, the Financial Ombudsman Service (FOS), and the Financial Conduct Authority (FCA). The aim was to understand not only the regulatory framework but also how affordability assessments operate in practice.

A central concern was the absence of sector-specific guidance acknowledging the realities of small-value, short-term lending to financially vulnerable members. The Guide addresses this gap by providing voluntary principles and standards that are proportionate, adaptable, and aligned with the cooperative ethos.

Distinguishes credit unions from other lenders in relation to affordability assessments?

Credit unions differ in several key ways:

• They are member-owned and not-for-profit, focusing on long-term member wellbeing rather than profit maximisation. Affordability assessments therefore consider sustainable repayment and member protection rather than purely transactional risk.
• They often provide small-value, short-term loans to members with irregular incomes, limited credit histories, or multiple financial pressures, making standardised, automated approaches less suitable.
• They possess qualitative knowledge of members gained through long-term relationships, savings behaviour, and engagement, which can enhance affordability assessment when used responsibly.

These factors necessitate a tailored approach to affordability that is both robust and contextually appropriate.

How does the Guide define and conceptualise “affordability”?

The Guide frames affordability as a holistic, dynamic concept, rather than a one-off calculation. It is not only about whether a member can meet repayments at the time of lending, but whether repayment can occur sustainably, without causing financial distress, dependency, or detriment.

Credit unions are encouraged to consider:

• Member income and expenditure
• Existing and foreseeable financial commitments
• The cumulative impact of repeat borrowing
• The potential for financial harm, not just default

Affordability is presented as an ongoing responsibility, requiring monitoring of borrowing behaviour and intervention where patterns indicate risk.

Proportionality is emphasised in the Guide. Why is this critical for credit unions?

Proportionality is crucial because overly burdensome processes can reduce access to credit, particularly for vulnerable members. For small-value, short-term loans, extensive checks may be disproportionate to loan size and risk.

The Guide advocates a graduated approach, where the depth of assessment reflects:

• Loan amount and duration
• Frequency of borrowing
• Evidence of financial stress
• Changes in a member’s circumstances

This ensures that standards are applied intelligently and contextually, maintaining robustness without introducing unnecessary barriers.

Why focus on small-value, short-term loans?

These loans are a core product, often serving as a lifeline for members managing short-term income shocks or unexpected expenses. Yet they carry heightened regulatory and reputational risks due to potential repeat borrowing or dependency.

The Guide provides guidance on:

• Assessing affordability at each lending decision
• Monitoring repeat borrowing and refinancing
• Identifying when intervention is needed

This helps credit unions continue to meet members’ needs responsibly while ensuring lending remains sustainable and defensible.

What guidance does the Guide offer on repeat borrowing and dependency?

Repeat borrowing is not automatically problematic; many members use credit union loans as part of a managed financial relationship. However, the Guide emphasises vigilance for patterns indicating financial stress, such as:

• Increasing loan frequency
• Rising outstanding balances
• Reliance on refinancing

Credit unions are encouraged to reflect on whether continued lending serves the member’s interests and whether policy adjustments or additional support are needed. This dynamic assessment aligns with both regulatory expectations and cooperative principles.

How does monitoring borrowing behaviour fit into effective affordability governance?

Monitoring is central. The Guide recommends that credit unions establish clear policies and systems to track both individual and portfolio-level borrowing patterns. This allows for:

• Identification of emerging risks
• Review of policy effectiveness
• Periodic adjustments to lending practices

By combining monitoring with reflective policy review, credit unions can respond proactively to potential financial harm, maintain regulatory compliance, and support long-term member resilience.

How does the Guide support interactions with regulators and the Financial Ombudsman Service?

The Guide provides a structured framework for documenting and evidencing affordability decisions, supporting credit unions when:

• Demonstrating compliance with affordability expectations
• Responding to complaints or ombudsman investigations
• Engaging with regulatory supervision

Although voluntary, it reflects careful interpretation of existing regulatory requirements. Using it can enhance consistency, transparency, and defensibility in decision-making.

How does the Guide help credit unions balance regulatory compliance with their social mission?

The Guide makes clear that robust affordability assessments and social purpose are complementary. Effective assessment protects members, reduces debt-related harm, and promotes financial resilience.

Credit unions can therefore meet high standards of consumer protection without adopting high-cost, profit-driven lending models, supporting a lending approach that is ethical, proportionate, and cooperative.

What role did ABCUL play in developing the Guide?

ABCUL provided critical support throughout. Representing around 70% of credit unions across England, Scotland, and Wales, ABCUL facilitated engagement with the sector, contributed practical insights, and supported dissemination.

This collaboration ensured that the Guide reflects operational realities and sector diversity, making it a practical, implementable resource for a broad range of credit unions.

How should credit unions use the Guide in practice?

The Guide is a practical reference, not a prescriptive checklist. Credit unions may use it to:

• Review and benchmark affordability policies
• Support governance and board-level discussions
• Inform staff training and operational decision-making
• Evidence proportionality and judgment in lending

Credit unions should adapt principles to their membership profile, size, and risk appetite, leveraging the Guide’s flexibility to reinforce both compliance and social purpose.

What are the key takeaways for credit union professionals?

1. Affordability is dynamic and holistic – assess both capacity to repay and potential harm.
2. Proportionality matters – apply checks appropriate to loan size, risk, and member circumstances.
3. Repeat borrowing requires reflection – monitor patterns and intervene where needed.
4. Monitoring is essential – use systems and policies to identify emerging risks and adjust practices.
5. Cooperative principles can enhance regulatory compliance – member knowledge and relationship management are legitimate tools in affordability assessment.
6. Evidence matters – structured frameworks support defensible decision-making with regulators and the FOS.

These principles collectively enable credit unions to strengthen lending standards while preserving access for financially vulnerable members.

Further information

The full Guide, Affordability Assessment for British Credit Unions: Guidance on small-value, short-term loans, is available here.