The continuing need to protect consumers was the central theme of a speech given by Nisha Arora, the Financial Conduct Authority’s Director of Consumer and Retail Policy, at the Finance & Leasing Association conference.
Her speech, entitled “FCA regulation of consumer credit – during the pandemic and beyond”, began with an acknowledgement that it had never been more important for the poorest and most vulnerable customers to have access to affordable credit.
Ms Arora remarked that the FCA are increasingly frequently talking about outcomes-based regulation, and that this is especially relevant in the credit sector. The four main outcomes the regulator wants to see are:
- We want consumers to be able to find products that meet their needs and make informed decisions in their best interests
- We don’t want consumers to become over-indebted by being given credit they cannot afford
- We want affordable credit to be available so that people can manage their day-to-day spend, meet unexpected costs and make essential purchases they could not otherwise afford but without becoming dependent on credit in the long-term, and entering into a spiral of debt
- We want consumers to be able to take control of their debt at an early stage when they fall into financial difficulty – with firms identifying and providing support at an early stage, and consumers engaging with debt advice if necessary, before their financial problems become too severe
In the next section of the speech, the FCA director explained the key principles that underpin her organisation’s regulation of consumer credit:
- Principle 6 – the need to treat customers fairly
- Principle 7 – the need to provide customers with information that is clear, fair and not misleading
- The need to ensure vulnerable customers receive outcomes that are as good as those received by other customers
- The two key outcomes set out in the Credit Priority in the FCA’s Business Plan – ensuring consumers can afford credit; and if they are unable to repay, that they are treated fairly
Regarding affordability, Ms Arora said firms must assess whether the credit a consumer has applied for is “predictably unaffordable” at the time of the application. This means the firm must not only assess whether they expect repayments to be made, but also whether the customer would be able to make these repayments without an adverse impact on their wider financial situation. One example of inappropriate lending would be where the repayments would cause the borrower to struggle to repay their essential bills.
As the October 31 deadline for requesting a payment deferral under the FCA’s Covid guidance nears, and we move to the next phase of credit firms providing support to affected borrowers, Ms Arora highlighted:
- Firms should contact customers at an early stage to reduce the chances of them getting into difficulty
- Some customers will only require short-term assistance and others will experience longer-term difficulties
- With more consumers than ever likely to be vulnerable, it is vitally important that firms are able to identify vulnerable customers and respond effectively to their needs
- Borrowers should be referred to appropriate sources of money guidance where appropriate
- Once firms have agreed a repayment arrangement with a customer, they should waive or reduce interest, fees and charges to the extent necessary to prevent the balance from escalating
- Firms must put in place sustainable repayment arrangements so that consumers can meet their essential expenses and priority debts
- Customers must be given a reasonable time to pay their debts, and in a way that doesn’t create wider detriment and hardship
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article