It has been known for some time now that the Financial Conduct Authority (FCA) was planning to make payday lending an area of high priority when it took over as consumer credit regulator. Now that the FCA’s Business Plan for the 2014/15 financial year has been published, we know for certain that all five of the largest payday lenders will be visited by the FCA in the next 12 months.
A comprehensive FCA on-site assessment of a firm’s compliance standards could cover areas such as:
- Business model and strategy
- Business processes and procedures
- Systems and controls
- Governance, including the fitness and propriety of key personnel
- Suitability of advice, including affordability assessments
- Training and competence standards
- Treatment of customers
- Complaint handling practices
Lenders can expect to be particularly closely scrutinised as to whether they are following the new rules which were introduced by the FCA. These include: the need for rigorous affordability assessments, restrictions on rollovers and use of Continuous Payment Authority, provision of information about debt advice to borrowers in difficulty and risk warnings on promotional material.
Other examples of supervision activity the FCA will carry out in the near future include:
Taking over a number of investigations into payday lending firms from the previous consumer credit regulator, the Office of Fair Trading (OFT)
- Conducting a thematic review into the way payday lenders collect debts and treat borrowers in difficulty
- Examining payday lenders’ business plans
- Reviewing payday loan promotional material
The thematic review is regarded by the FCA as being particularly important as 60% of payday loan complaints to the OFT concerned debt collection practices, and one third of all payday loans are either repaid late or never repaid at all.
Other payday loan work to be undertaken by the FCA includes:
- Consultations into the level at which it will set its cap on the total cost of credit. Payday lenders will be subject to this cap from January 2015.
- Encouraging the introduction of real-time data sharing across the sector
- Liaising with consumer groups and trade associations
Previous quotes from FCA chief executive Martin Wheatley on the need to regulate payday lenders have included: “There will be no place in an FCA-regulated consumer credit market for payday lenders that only care about making a fast buck,” and “I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking.”
All of the 50 largest lenders in the UK were ordered to make urgent improvements to their practices and procedures by the OFT back in March 2013.