The most recent FCA ‘strategy letter’ on consumer lending is one of the most detailed we have seen, and it focuses on three portfolios; high-cost lending, mainstream consumer credit lending and credit unions. This is an unusual step for the regulator, as it normally issues separate letters to each portfolio. However, on this occasion there is a combined warning as it highlights common potential consumer harm issues in each portfolio.
It is clear that the FCA wants to support a thriving and innovative consumer lending market, but at the same time is looking for the sector to show that it lends responsibly in an affordable and safe way. It is equally clear that the regulator is growing impatient with firms who provide poor consumer outcomes. How many times does it have to highlight the same old failings? Its criticism applies to all consumer lending firms and includes inadequate creditworthiness assessments, relying on re-lending to sustain business, offering products that promote persistent use, inadequate support and forbearance options, ineffective complaints processes and inadequate resources to meet redress liabilities as they fall due.
That shockingly long list, sadly, contains no surprises to us. Consumer lending firms should recognise the FCA will take whatever steps are required to reduce and prevent serious consumer harm, set higher testing standards, and promote positive change.
Portfolio letters, like this one, do not demand a reply, but they do need a response. Firms simply must review their policies and procedures, at Board level, and compare them against the issues highlighted in the letter. Boards are required to agree appropriate corrective actions and explain those actions to their FCA Supervisor.
If there is one FCA letter that requires independent third line input, this is it. Rockstead is in a unique position to advise firms on these matters. Our consumer lending subject matter experts can work with firms to complete gap analyses, recommend proportionate change, oversee implementation and monitor progress. Get in touch to discuss this matter further and remember to ask for a copy of our corporate governance case study.