FCA backs calls for more alternatives to high-cost credit
Peer-to-peer lending has been backed as an alternative funding source as the regulator announced a clampdown on the unsecured credit market.
The City regulator accepted recommendations from former interim chief executive Christopher Woolard (pictured) who called for more alternatives to high-cost credit including peer-to-peer lending.
“P2P has been around for some years and the model has clearly changed for some time,” Woolard told Peer2Peer Finance News.
“On the whole it has clearly been targeted around the prime market, either lending to businesses or individuals getting cheaper deals.
“The risk to that lender has often dissuaded people from being in that market. You can’t rule it out as a potential way of funding that lending demand.
“The question for anyone in this space, P2P or conventional, is on how they ensure good affordability is done when dealing with subprime customers and how they take care when things go wrong, such as offering forbearance and operating properly.
“There’s no reason P2P can’t be a source of funding into the prime market.”
Woolard set out 26 recommendations for the FCA including regulating controversial buy-now-pay-later products.
He stepped down from the FCA board in October to start the review.
The review called for more alternatives to high-cost credit to make the credit market sustainable.
It said that the FCA should work with the government and Bank of England to reform the regulation of credit unions and community development finance institutions and more should be done to encourage mainstream lenders into this space.
Woolard also recommended more funding for free debt advice and said regulation should follow how products are used in the real world.
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“As the market innovates and changes, regulators and legislators need to respond quickly and decisively to protect consumers by facilitating credit where it is beneficial and clamping down on it when it does harm,” said Charles Randell, chair of the FCA.
“The FCA agrees that there is a strong and pressing case to bring buy-now pay-later business into regulation.”
Charlotte Crosswell, chief executive of fintech trade body Innovate Finance, welcomed the review.
Read more: FCA lumps P2P lending in with higher risk products again
“With the significant growth of e-commerce and wider customer adoption of digital finance, more and more consumers are taking advantage of the diverse range of fintech services on offer to help them manage their finances,” Crosswell said.
“Interest-free buy-now-pay-later plans have been very popular, but we will need to ensure that consumers are fully protected.”
The FCA will publish its 2021/22 business plan in April which will give further details of its response to the review.
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