In an open letter to the CEOs of high-cost short-term credit firms (payday lenders), the director of supervision at the Financial Conduct Authority (FCA) wrote that it’s seen an increase in complaints about unaffordable lending.
As such, it wants to see an improvement in the way firms handle complaints. This includes assessing ‘consumer detriment’ where firms have identified problems in the way they have provided a service to customers.
Where issues have been found, the FCA said firms may need to stop lending until they’re fixed.
The FCA said payday lenders should also consider whether to proactively provide redress or remediation, including contacting customers who haven’t complained.
But where firms are ordered to compensate customers, they must do so as soon as possible.
Jonathan Davidson of the FCA, also highlighted the risks surrounding repeat borrowing by customers.
He wrote: “Rigorous affordability assessments were key to avoiding harm in this area, and firms should ensure they are making responsible assessments of the sustainability of borrowing.”
Payday lenders are already subject to price cap controls which came into effect in 2015, but further rules come into effect on 1 November this year.
These include lenders carrying out an ‘affordability risk’ to assess whether customers can make repayments under the agreement.
A firm isn’t able to grant a loan unless it is able to prove that it’s carried out an assessment, including whether customers are likely to see a fall in income over the terms of the agreement. They should also estimate the customer’s non-discretionary expenditure.
Davidson wrote: “While we recognise that that there will always be some loans that turn out to be unaffordable, for example because of the impact of unforeseen circumstances, firms maintaining effective policies and procedures in line with the above requirements should aim to eliminate lending that is predictably unaffordable, minimising the risk of financial distress to consumers.”