limit_amount

The limit_amount parameter describes the total credit limit on the loan or account (overdraft). The monetary type is represented as an integer number of cents/pence. Note that for loans this is typically a positive number (as balances are positive) and a negative number for accounts (where a negative balance denotes an overdraft).

The European Commission’s Consumer Credit Directive defines the ‘total amount of credit’ as:

“the ceiling or the total sums made available under a credit agreement.”

The FCA Consumer Credit sourcebook in Chapter 5: Responsible Lending, CONC 5.3 Conduct of business in relation to creditworthiness and affordability states:

For a regulated credit agreement for running-account credit the firm, in making its creditworthiness assessment or the assessment required by ■ CONC 5.2.2R (Creditworthiness assessment: before agreement): (a) should consider the customer’s ability to repay the maximum amount of credit available (equivalent to the credit limit) under the agreement within a reasonable period; (b) may, in considering what is a reasonable period in which to repay the maximum amount of credit available, have regard to the typical time required for repayment that would apply to a fixed sum unsecured personal loan for an amount equal to the credit limit; and (c) should not use the assumption of the amount necessary to make only the minimum repayment each month.

Further (CONC 5.3):

For a regulated credit agreement for running-account credit the firm should set the credit limit based on the creditworthiness assessment or the assessment required by ■ CONC 5.2.2R (1) and taking into account the matters in ■ CONC 5.2.3 G, and, in particular, the information it has on the customer’s current disposable income taking into account any reasonably foreseeable future changes.

An example of a reasonably foreseeable future change in disposable income which a firm should take into account in setting a credit limit may include where a customer is known to be, or it is reasonably foreseeable that a customer is, close to retirement and faces a significant fall in disposable income.