FCA Warns High-Cost Lenders About Exploitation

The Financial Conduct Authority (FCA) has called out high-cost lenders for driving vulnerable borrows into further debt by using exploitative marketing methods.

The warnings from the UK‘s financial watchdog come after a review of 250,000 customers of the short-term, high-cost credit industry. This involved those who had taken out guarantor loans, payday loans, rent-to-own products, or doorstep credit.

The FCA has ‘significant concerns’ with regard to repeat borrowing, which accounts for around 80% of high-cost credit customers as it is cheaper for firms than taking on new clients.

Some firms have fast-tracked applications by only asking customers if their have been any changes to their financial situation since their last loan – a practice the FCA says causes ‘customer harm’.

“We are concerned that firms are lending to customers beyond levels which they can sensibly manage and causing customer harm as a result,” said the FCA.

The watchdog also raised concerns about the marketing methods utilised by companies, especially the pop-up adverts on online accounts that encourage customers to take on debt outside of their means.

The FCA are asking companies to assess their lending practices and marketing methods ahead of restarting business following the short pause during the COVID-19 lockdown.

Executive director at the FCA, Jonathan Davidson, said: “Before the pandemic we saw increasing numbers of complaints about high-cost lenders’ re-lending practices, which showed that firms had failed to adequately assess affordability, and they were not re-lending in a way that was sustainable for customers.

“We expect firms to review their re-lending practices in light of our findings as they start to lend again, and to make any necessary changes to improve customer outcomes. We will continue working with firms to raise standards, and we will continue to take action where we see harm.”

The warnings put increased pressure on an industry which has already seen firms fold as a result of customers complaining about exploitative lending practices. Wonga collapsed in 2018, with CashEuroNet UK and Money Shop failing in 2019.

The Consumer Finance Association, which represents companies in the sector, said: “For millions of families, repeat lending successfully helps those with regular shortages in their budget, either temporary dips in income or additional expenditure.

“No one will deny that this is a challenging area. Ahead of this delayed report, there have been talks over the last year between lenders and the FCA to make changes that protect customers. I know that lenders will welcome any additional clarification that the FCA can provide us.”