Too many payday lending firms are failing to meet the requirements to treat customers in arrears fairly, according to a review of the first twelve months of the Financial Conduct Authority’s regulation of the sector.
However, the review also found evidence firms have taken steps to change behaviour, including changes to senior management, training staff to deal with struggling customers and improving monitoring, compliance and risk.
Last March, shortly before it took over responsibility for regulating consumer credit, the FCA began a thematic review into how payday lenders and other high cost short-term credit providers collect debts and treat borrowers who experience financial difficulty.
The review, which covered 60 per cent of the market, revealed unacceptable practices from many lenders, including failures to recognise customers in financial difficulty, failure to direct people to free debt advice and firms offering inflexible repayment options.
Tracey McDermott, director of supervision and authorisations at the FCA, commented that this segment of the industry has, for too long, been in the spotlight for the wrong reasons.
“The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market.”
The City watchdog found serious non-compliance and unfair practices in all firms that it reviewed, leading to poor outcomes for many customers and in some cases, serious detriment and financial loss.
Firms are required to give customers “breathing space” from collections activity if they provide evidence that they are working with a debt advisor to manage their debts.
Where situations of non-compliance were uncovered, the FCA stated that it has intervened quickly to get firms to take specific steps to ensure the failings are not repeated in the future. In some cases, investigations are ongoing and the regulator is working with firms to determine appropriate levels of redress for those affected.
In a number of cases, investigations have led to the regulator to commission an independent skilled person’s review of a firm’s practices, at their own expense, or it has restricted the ability of a firm to do business until improvements are made.