Consumer credit in Europe is entering a more demanding phase with regulators making it clear that responsible lending can no longer be treated as a slogan—it must be something lenders can evidence, defend, and apply consistently across products, channels, and markets.
At the same time, customer expectations have not softened. Credit decisions still need to be fast, digital, and frictionless, even as affordability becomes harder to assess in a world of variable income, multiple concurrent credit products, and rising payment stress.
The only sustainable way through it is better data and better decisioning which will be supported by scalable SaaS loan management software (LMS) and AI-enabled lending analytics that can adapt as regulation and borrower behaviour continue to evolve.
Regulators No Longer Accept Good Faith - They Expect Proof
A major driver of this shift is the updated EU Consumer Credit Directive (Directive (EU) 2023/2225), which replaces the 2008 framework, bringing new products into the scope of regulation for the first time. While the headline focus is affordability and over-indebtedness, the deeper change is about proof.
As Zitah McMillan, CEO of Finexos and former Executive at the FCA, explains:
“The biggest change is how you explain the process you went through and the decisions you took.”
Historically, lenders could demonstrate compliance by showing that creditworthiness checks had been performed. That is no longer sufficient.
“Previously, we could say we checked their creditworthiness,” Zitah says. “Now we need to show whether the loan was actually affordable to that person.”
This distinction matters. Creditworthiness and affordability are no longer treated as the same thing. Regulators now expect lenders to demonstrate that a loan made sense in the context of the borrower’s real circumstances, recognising that those circumstances can materially affect affordability. It’s all part of the new regime, making sure lenders
As Zitah says, “It’s gone from saying ‘I can lend in good faith’ to having to prove it.”
Why 2026 Leaves No Room for Good Intentions
EU Member States were required to transpose the directive into national law by November 2025, with the new requirements applying from November 2026. That means the coming year is less about interpretation and more about execution.
For lenders, this translates into pressure to turn policy language into operational reality—embedding affordability logic into decisioning engines, customer journeys, servicing processes, and loan management systems.
Manual workarounds and informal judgement will not scale under scrutiny. Consistency, repeatability, and evidence matter far more than just good intentions.
Although the directive aims to harmonise consumer-credit standards across the EU, national regulators may still apply and supervise the rules differently. The regulators themselves, in markets where there is not a single conduct regulator, are also adapting to this expansion of the consumer credit regime.
For lenders operating across multiple markets, this creates a familiar challenge: how to maintain a consistent affordability framework while flexing for local expectations.
Modern SaaS lending platforms and modular loan analytics software play an increasingly important role here, allowing policy updates and decisioning changes to be implemented centrally while still accommodating local nuance.
Why Affordability Models Are Being Re-Examined
Affordability is no longer a clean calculation. Borrowers today often juggle instalment loans, revolving credit, overdrafts, BNPL arrangements, subscriptions, and informal obligations—while income may be variable or seasonal. Two applicants with identical salaries can have very different cash-flow realities.
Many lenders, Zitah notes, either did not explicitly assess affordability in the past or built models years ago that have since drifted.
“Over time, new people join organisations, thresholds get tweaked, and things drift,” she says. “You have to go back to first principles.”
The regulatory change forces lenders to look again—without being biased by what they believe they already do well.
“It won’t be the case that everyone has to start from scratch,” she explains. “But everyone has to think about the legislation in a way that isn’t shaped by what they’ve done previously. You have to look at what the regulator is looking for now.”
From Approval to Justification
This shift underpins a broader change in mindset. In 2026, the question is no longer whether we can approve this loan? It is can we justify approving this loan?
That justification must link policy, data, and decisioning logic in a way that can be reconstructed later by regulators, auditors, boards, or funding partners.
Affordability has become as much about governance and evidence as it is about risk.
Data Is Only Valuable If You Can Defend It
Most lenders do not suffer from a lack of data. They suffer from a lack of clarity about which data truly improves decisions.
Affordability assessments often combine bureau data, self-declared information, bank-transaction data, internal performance history, and third-party sources. Each input has value but none should be accepted blindly.
“I don’t think lenders ever take anything at face value,” Zitah says. “When money is involved, face value is not a good part of your decisioning.”
Every data source should be interrogated, tested against outcomes, and assessed against business rules.
“Over time, what’s happened is data ingestion creeps up,” she explains. “More layers of data come in, often from third parties, and no one’s checked recently whether they’re actually helping.”
The regulatory transition creates a natural pause point to reassess.
You should be able to say: is this input helping me make better decisions? Is it something I could rely on if I had to submit it to a regulator? And whether it leads to good customer and business outcomes?
Many lenders are now back-testing affordability assumptions against meaningful slices of their loan books, adjusting thresholds based on real performance rather than theory. AI-enabled lending analytics can accelerate this process, particularly where internal teams lack capacity.
The Rubik’s Cube Moment
When it comes to explainability and reporting, there is still uncertainty. Local regulators will determine reporting formats, metrics, and frequency over time.
Zitah describes the current moment with a metaphor:
“We’re in a Rubik’s Cube moment. We don’t yet have one side fully coloured in. We’re trying to figure out which side we’ll get first, what colour it will be and how we solve the puzzle from there.”
But uncertainty does not mean inaction. There are things that can be done now starting with decision logs that show how over-indebtedness has been actively prevented, including loans not made or amounts reduced based on affordability assessments.
AI, Fear, and Responsibility
As AI becomes more embedded in credit decisioning, governance is no longer optional. Under the Consumer Credit Directive and the EU AI Act, lenders must demonstrate explainability, accountability, and the possibility of human intervention.
Boards especially feel this acutely.
“There’s a fear that if you can’t explain what the AI did, you’re on the hook for it,” Zitah explains. “You can’t say, ‘the AI did it’—nobody will accept that.”
At the same time, there is an opposing pressure.
“There’s also the fear of missing out,” she says. “Investors expect to see AI. If it’s not in your updates, they think you’re stuck in the mud.”
This creates a tension between caution and expectation—one that responsible AI providers must understand and address.
“Boards don’t need to understand the code,” Zitah notes. “But they do need to understand what the AI is doing and how it’s doing it.”
The Mindset Shift for 2026
For Zitah, the most important change ahead is philosophical:
“It won’t be ‘can I make money on this loan?’ It will be ‘can the borrower afford this loan?’—and then, ‘can I lend it profitably?’”
With the regulatory clock ticking, complacency is a risk.
“You don’t know when your regulator will come knocking,” she warns. “In some markets, it may be sooner rather than later. So use this time to get into a really good place.”
Closing Thoughts
Affordability and over-indebtedness are no longer side themes in consumer credit. They are the lens through which regulators, boards, investors, and customers judge lenders.
In 2026, better outcomes will come from better data and better decisioning—supported by ethical AI in lending, robust lending analytics, and scalable loan management software that stands up to scrutiny.
That’s also why our partner Finexos is making this practical: they’re offering a free “Starter for 10”—a short, lender-ready framework covering 10 measures they believe will be required from lending businesses to evidence responsible, defensible affordability decisioning. If you’d like it, we can send the full list and walk you through how to map each measure to your data, decisioning logic, and LMS workflows.
For lenders, the opportunity is clear: stop reacting to regulation, and start using it as a roadmap for resilient, responsible growth.
