On 13 October 2020, the FCA published a speech by Nisha Arora (Director of Consumer and Retail Policy) entitled FCA regulation of consumer credit – during the pandemic and beyond.
Key points in the speech include:
- In all the FCA’s work to protect consumers in credit and other markets, it is guided by the Principles for Business. In particular, Principle 6 on treating customers fairly and Principle 7 on information needs and ensuring that information is clear, fair and not misleading. The FCA also expects firms to take extra care in their treatment of vulnerable consumers in order to ensure they receive outcomes as good as other consumers.
- When it comes to regulating credit markets specifically, the FCA’s focus has been on the following 2 key outcomes: (i) ensuring consumers can afford credit, and (ii) if they are unable to repay, that they are treated fairly.
- The FCA’s creditworthiness rules and guidance protect consumers from being granted credit that is predictably unaffordable at the point it is taken out. The FCA wants firms to make a reasonable assessment, not just of whether a customer will repay, but importantly of their ability to repay affordably and without this having a significant impact on their financial situation and their ability to afford essential expenses – to ensure people can maintain a basic quality of life.
- Since the FCA took over credit regulation and in its recent guidance responding to the pandemic, good forbearance has been at the heart of its work.
- Around 1.8 million people have taken a deferral on a mortgage and around 1.7 million a deferral on a credit card or personal loan. The FCA is aware that over 80% of people with payment deferrals found them helpful and that many would have struggled without them. A majority of people who took them have been able to repay but a significant number of people will need further support. For those in the subprime markets the future looks particularly uncertain.
- The FCA has recently published new guidance on both mortgages and credit, which aims to ensure that both people coming to the end of payment deferrals, and those who are impacted by coronavirus after the current guidance ends on 31 October, get the support they need. The guidance builds on the existing forbearance framework in FCA rules and the Principles for Businesses.
- The speech emphasises some aspects of the new guidance that the FCA considers particularly important. For example, in a shift away from the previous guidance, the new guidance makes clear that the support customers receive may be reflected on their credit files in accordance with normal reporting processes. This will help to ensure that lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending.