The Financial Conduct Authority held its annual public meeting on September 24, and a number of the responses to the general public’s questions revealed more details about the impending review of unsecured credit regulation.

Christopher Woolard, who will lead the review now his term as interim chief executive has ended, suggested that buy now pay later deals and loan products linked to salaries will be key areas of focus, making mention of “an extensive shift to these products”.

One questioner suggested the FCA should have worked more closely with payday and high cost lenders and sought to improve their standards and suggested that the regulator had instead forced a number of lenders to exit the market and had left borrowers vulnerable to illegal lenders.

However, Mr Woolard said there was little evidence of growth in unregulated lending, and he went on to comment about the “significant misconduct” being seen in many high cost lenders, and their unsustainable business models.

Mr Woolard commented:

“At the heart of this, is the question around if there’s a sustainable and compliant business model, when you rectify those problems and remove those harms to consumers. Are those businesses capable of staying in the market? In many cases, the answer was no.”

On the same subject, Jonathan Davidson, director of supervision – retail and authorisations at the FCA, added:

“The absolute priority for us is affordability. The biggest damage to consumers, particularly vulnerable consumers, comes from irresponsible, or even predatory lending, where there’s a business model that’s highly profitable when customers can’t afford to repay.”

Mr Woolard also mentioned his new credit regulation review task when he delivered his final speech as FCA chief executive at the 10th Annual International Financial Services Forum.

Here, he said:

“We can see a real difference in terms of impact on the haves and have-nots in this [coronavirus] crisis that doesn’t conform to the patterns of previous economic shocks. But for the poorest and most vulnerable in society there is still a demand for credit.

“Increasingly some of that demand is being met by changes in business models and new developments in unsecured lending including the growth of unregulated products in retail and the workplace.

“That shift poses fundamental questions about the unsecured credit market.

“I’m delighted to have been asked by the FCA Board to review how regulation can support a healthy unsecured lending market. The review will also take into account the impact of the pandemic on employment security and credit scores.”

Also at the public meeting, FCA chairman Charles Randell promised that the regulator would take appropriate action once the findings of an independent review into the failure of a prominent mini-bond firm have been published.

The Financial Services Compensation Scheme was also something of a hot topic at the meeting. Interim strategy and competition director Sheldon Mills noted the increase in firms’ costs due to the need for all firms to fund the FSCS and said there was a need to stop “bad actors” in the advisory and investment sectors in order to reduce the burden on the FSCS.

However, at a press conference immediately following the public meeting, Mr Woolard appeared to rule out the ‘product levy’ option as an alternative method of funding the FSCS. The product levy approach would involve a small additional charge being added to the cost of individual products, with the amount of the charge varying according to the risk of the product in question.

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