On 20 March 2024, the Financial Conduct Authority (FCA) published a letter to CEOs of firms in its consumer lending portfolios, setting out its updated view on the key risks of harm those firms pose to their consumers and the markets in which they operate. This view will shape the FCA’s focus and engagement with the consumer lending market over the next two years.

The letter outlines the FCA’s strategy for consumer lending with a focus on three portfolios in the consumer lending market: High-Cost Lending, Mainstream Consumer Credit Lending and Credit Unions. The FCA explains that it wants to support the growth of an affordable and safe credit market through increased firm and trade body engagement to share and encourage better practice, whilst also supporting innovation through steps such as the Regulatory Sandbox, Innovation Pathways and TechSprints.

The FCA’s priorities

The FCA explains that its market-wide strategic objective under the Financial Services and Markets Act 2000 is to ensure that the relevant markets function well. To achieve this, its three key focus areas are: reducing and preventing serious harm, setting and testing higher standards, and promoting competition and positive change. The letter then goes on to explain the FCA’s consumer lending specific market priority harms under each of these focus areas, which apply to firms across all three portfolios – the FCA’s supervisory programme will focus on these harms closely over the next two years.

Reducing and preventing serious harm

The letter states that firms must:

  • Lend responsibly and sustainably.
  • Ensure that the price paid for a product is reasonable compared to the overall benefits.
  • Support consumers in financial difficulty.
  • Handle complaints and redress requirements effectively.
  • Have appropriate systems and controls in place to mitigate the risks of financial crime.
  • Have robust governance practices, ensuring effective oversight and risk management.

Setting and testing higher standards

In relation to the Consumer Duty, the letter emphasises the required continued commitment from firms to ensuring good consumer outcomes, including through monitoring data and other sources of information. It also reminds firms of the upcoming date, 31 July 2024, from which the Duty will apply to closed products and services (as well as open products, to which the Duty has applied since 31 July 2023).

Promoting competition and positive change

The FCA flags the importance of ensuring that consumers have access to affordable credit, to allow them to manager their money and deal with short-term or unexpected cash flow issues. It states that it is continuing to work closely with stakeholders to reduce the number of consumers unfairly excluded from affordable credit, and it urges firms to consider how they can support declined customers, for example signposting to a reliable third party and/or MoneyHelper. The FCA also asks firms to consider what they can do to innovate and provide greater access to affordable credit, which may include collaborating with government initiatives such as the No Interest Loan Scheme.  

The letter concludes by reminding CEOs that they are responsible for ensuring that their firm meets the requirements, including the obligations and expectations set out in the letter, warning that a significant part of the FCA’s supervisory activity over the next two years will be to test firms against these expectations. It asks CEOs to consider how the letter applies to their business and to act as necessary, including promoting discussion at senior management level. The FCA also notes that firms should be able to demonstrate the steps they have taken to address the risks covered in the letter.