On 15 October 2018, the FCA published a Dear CEO letter regarding an increase in complaints about unaffordable lending and setting out how the regulator expects high-cost short-term credit (HCSTC) firms to manage the impact.

The Dear CEO letter begins by stating that firms should take prompt action to:

• assess their lending activity to determine whether creditworthiness assessments are compliant. If deficiencies are found firms should take remedial action to ensure on-going lending activity is compliant and consider whether proactive redress may be required; and
• inform the FCA if they are unable (now or in the future) to meet their financial commitments because of any remediation costs.

The Dear CEO letter then explains that firms’ complaint-handling procedures should ensure that they can improve the way in which they handle complaints, in light of the relevant determinations by the Financial Ombudsman Service (Ombudsman) of complaints about the firm. The Ombudsman has recently published examples of determinations of individual complaints about payday loans to illustrate its approach to the issues raised in those complaints. If relevant, firms should take the examples into account as part of establishing their own effective procedures for complaints handling.

The Dear CEO letter also reminds firms of their requirements in respect of affordable lending. In particular, the risks in relation to repeat borrowing (flagged in the FCA’s price cap proposals in CP14/10) are highlighted.

The amended rules and guidance on assessing affordability in consumer credit (as set out in PS18/19) come into force on 1 November 2018. Firms will need to review their policies and procedures, and how these have been implemented, to ensure that they are compliant, and can evidence this. They should also keep their policies and procedures under review to monitor compliance on an ongoing basis.