On 6 October 2022, the FCA published a Dear CEO letter which sets out an updated view on the key risks of harm the regulator believes high-cost lending firms pose to their customers and the markets in which they operate. The FCA also sets out in the letter its strategy for this portfolio of firms to ensure that they understand the regulator’s focus, its expectations of them, and the related actions in order to manage their risks and reduce harm to consumers.

Among other things the letter provides that:

• The FCA expects firms in this portfolio to consider how the cost-of-living crisis is likely to impact consumers and take the necessary steps to support consumers and mitigate harm.
• The FCA expects CEOs and firm’s management to be able to demonstrate the steps they have taken to address the risks covered in the letter and an earlier letter of 16 June 2022.
• Firms need to start preparing for the implementation of the Consumer Duty, which becomes effective from 31 July 2023.
• The FCA has seen some firms complete reviews of their creditworthiness assessment policies and resume lending with higher standards. The FCA expects firms to maintain these higher standards and lend responsibly and provide appropriate forbearance to consumers who are in financial difficulty. The FCA will continue to work with firms in order to remediate their approach to lending and conduct past business reviews where there is evidence of systematic historical irresponsible lending.
• The FCA will continue to focus on responsible lending and the treatment of borrowers in financial difficulty.
• Key concerns in this portfolio include sludge practices (harmful frictions that create unreasonable barriers for consumers), affordability and relending, forbearance and compliant handling.

The FCA expects high-cost lending firms to reflect on the risks, issues and upcoming regulatory changes highlighted in the letter and proactively assess how they operate and put in place the necessary actions.