The FCA has published a Dear CEO letter regarding its expectations of high-cost short-term credit lending firms (HCSTC firms).
In the Dear CEO letter the FCA summarises a number of concerns that it has uncovered in the course of supervising HCSTC firms since April 2014. The Dear CEO letter has the following headings:
- credit broking including lead generation. HCSTC firms are reminded that the FCA expects them to take reasonable steps to ensure that any potential customer presented to them by a credit broker has been sourced in an appropriate manner. HCSTC firms should not pass on or sell customer data to any third party unless it is appropriate to do so;
- ensuring that all loans to customers are affordable. The FCA is concerned that high levels of re-lending or high levels of arrears and default may indicate that a firm is failing to undertake adequate affordability assessments at the outset. HCSTC firms are reminded that they will need to demonstrate in their applications for authorisation that they have proper processes in place, with appropriate governance and controls including monitoring and reporting requirements, to make suitable lending decisions;
- fair treatment of customers in financial difficulties. The FCA has identified concerns about the way HCSTC firms are treating customers in financial difficulties. It reminds firms that: (i) customers in default or arrears difficulties should be treated with forbearance and due consideration; (ii) firms should not unfairly limit or constrain customers’ access to appropriate forms of forbearance; and (iii) firms must ensure that all communications with customers, through all channels, are clear, fair and not misleading;
- governance and controls to monitor compliance with policies and procedures. Whilst welcoming the improvements that HCSTC firms’ senior management have committed to make, the FCA is concerned that it has frequently found weaknesses in firms’ control environments preventing changes from being effectively embedded;
- implications for lapse of interim permissions. HCSTC firms are reminded of the implications of missing the deadline for submitting their application for authorisation; and
- responsibilities of firms purchasing existing loan portfolios. The FCA expects any firm contemplating to purchase an existing loan portfolio to conduct robust due diligence, including on the compliance of the agreements with the Consumer Credit Act 1974, the Unfiar Terms in Consumer Contracts Regulations 1999 etc.
View Dear CEO letter – The FCA’s expectations of high-cost short-term lenders, 21 January 2015