The Financial Conduct Authority (FCA) has written to 3,500 companies, including consumer credit firms, reminding them of the standards they should be meeting as consumers struggle with the rising cost of living.
The regulator is concerned that some customers in vulnerable circumstances are not getting the support they need. For example, it found that lenders had not discussed the potential benefits of money guidance and free debt advice, or helped borrowers to access these.
While these concerns were seen broadly across the sector, more serious failings were spotted at more than 30 firms, largely in the consumer credit sector. These included failing to identify potentially vulnerable customers.
The FCA has reminded lenders that they should provide support to struggling borrowers, tailored to their specific circumstances, and only charge them fees which are fair and cover the firm’s costs.
Next steps for firms
As consumers struggle with rising prices, demand for credit is expected to soar. At the same time, firms will see a wider group of consumers in financial difficulty, who will find it harder to repay their debts. The regulator said firms must remain alert to the changing situation of their customers and target their efforts in response.
In its latest ‘Dear CEO’ letter, the FCA advised lenders to:
- make sure their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure
- improve how they treat consumers in vulnerable circumstances
- direct customers to money guidance or free debt advice
Small business challenges
The FCA said its tailored support guidance for consumer credit, which was issued during the pandemic, is relevant to borrowers who are in financial difficulties as a result of the cost of living crisis.
The regulator noted that small business customers may well be facing similar challenges to consumers and lenders must also consider this.
“Early action is important for those struggling with debt,” Sheldon Mills, executive director of consumers and competition at the FCA. “We need all firms to get the basics right and to provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.”
He added that firms should expect the FCA to pay close attention to their actions on this front over the coming months.