On May 13 2014, the UK’s second largest high-street payday lender exited the short-term credit market after the Financial Conduct Authority (FCA) found fault with the firm’s conduct. The issues at the firm were first identified by the former consumer credit regulator the Office of Fair Trading (OFT), and the FCA took over the matter when it became the new credit regulator on April 1.
The FCA has not given precise details of the failings identified at Edinburgh-based The Cheque Centre, which has 451 branches throughout the UK, but the issues are sufficiently serious that the firm has ceased offering payday loans that are repayable in one lump sum, and has also suspended attempts to collect unpaid debts via telephone. The firm will not be allowed to start making such calls again until it has satisfied the FCA that sufficient improvements have been made.
According to the FCA press release, the firm has also made a number of other changes, which include alterations to policies and procedures and to training arrangements. It will also be subject to a Section 166 skilled persons review – an exercise the FCA uses to gain an independent view of the level of risk posed by a particular firm.
There is no indication at present as to whether the FCA will take formal enforcement action against The Cheque Centre, which is a subsidiary of US-based Axcess Financial.
The firm continues to offer cheque cashing, foreign exchange and pawnbroking services.
Martin Wheatley, the FCA’s chief executive, said: “This is an early victory for people that use payday lenders. We made our tougher expectations clear to Cheque Centre and they have wasted no time in making changes. I have said before that firms would need to dramatically improve their operation or exit the market, and we are now seeing that happening. This is an important step in the right direction and other payday lenders should take note.”
“The FCA made clear their expectations, under the new rules, and we offered to make immediate changes,” said a spokesman for Cheque Centre. “One of the decisions we made was to accelerate our exit from payday lending.”
This news should serve as a warning to all payday lenders that they need to get their house in order. Whilst there is a six-month amnesty of sorts, in that prior to October 1 2014 firms will only be punished by the FCA if their actions are at odds with the old OFT rules, the FCA’s scrutiny of payday lenders has clearly already commenced, with this announcement coming just six weeks into the new regime. Mr Wheatley had previously warned credit firms they would notice an immediate difference in their regulatory environment.
The FCA has promised to undertake a series of supervision tasks concerning the payday loan sector, which include:
- Visiting all five of the largest lenders
- Taking over a number of investigations from the OFT
- Conducting a thematic review into the way lenders collect debts and treat borrowers in difficulty
- Examining lenders’ business plans
- Reviewing promotional material