FCA tells high-cost lenders to actively mitigate harm to consumers
The Financial Conduct Authority (FCA) has asked firms providing high-cost lending products to support consumers and mitigate any harm as the cost-of-living crisis takes hold.
In a ‘Dear CEO’ letter, the regulator said it expects businesses to demonstrate the steps they have taken to address the risks covered in this and a previous letter from June.
On 16 June, the financial watchdog wrote to 3,500 companies, including consumer credit firms.
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Providing the firms with an update on its view on the key risks of harm these businesses pose, the FCA also said it is concerned that their consumers who are facing financial stress could be more susceptible to purchasing unsuitable products.
The regulator’s Consumer Duty is set to become effective from 31 July 2023, and high-cost firms need to ensure that they meet these updated obligations. In the letter, the FCA pointed out that the senior leadership of these firms should have agreed high-level implementation plans by the end of October.
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“The Consumer Duty will require firms to act to deliver good outcomes for customers (including those in vulnerable circumstances),” the letter said. “This reflects the positive and proactive expectation we have of firm conduct, and our desire for firms to think more about consumer outcomes and place consumers’ interests at the heart of their activities.”
Drivers of harm
The FCA will be assessing firms based on their ability to demonstrate fair value, suitability and good treatment, confidence and access. It will also be looking at how high-cost firms are governed and oversee their regulated activities. It will ask firms to share their approach for the Consumer Duty during the implementation period.
“We expect firms’ culture and governance to drive good behaviours and produce fair outcomes that are likely to benefit consumers and markets, and for individuals to be accountable for their actions… We have seen failings that can often be traced back to weaknesses in governance and senior manager accountability,” the letter noted.
According to the FCA, there are several drivers of harm at high-cost lenders, including the increasing use of sludge practices, or harmful frictions that create unreasonable barriers; not considering underlying financial difficulties when lending; and the quality of complaints handling.
“We expect you to reflect on the risks, issues and upcoming regulatory changes highlighted in this letter to proactively assess how your firm operates and put in place the necessary actions,” the letter said.
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