FCA: As a regulator it's hard to tell people ‘prices will go up’

Speaking to Ozge Ibrahim on the Inside FCA podcast, executive director at the regulator, Sheldon Mills outlined what the organisation is doing to help consumers with the rising cost of living. 

Mills said as the sector prepares for the consumer duty, it can be difficult for the regulator to tell people that prices will go up.

“As firms think about the fair value element of the four outcomes, it is important to think about the lens of rising inflation and increasing prices as they think about the value of their products and services. That said, it doesn't mean that prices won't go up and that's really important,” Mills said. 

“Sometimes it's hard, as a regulator, for you to say that to people, your prices will go up. But rising inflation means rising inflation for businesses as well.”

According to FCA research, in May last year 7.8mn people were heavily burdened by their domestic bills and credit commitments - an increase of more than 2mn since 2020.

“It’s clear that some of those cost of living pressures are deepening,” Mills said.

When you start to give forbearance en masse, then you start to sort of mix up the purpose of credit Sheldon Mills, FCA

“The OBR forecast historic falls in living standards through to 2024, and for many, this April will see further increases in energy, water and phone bills, and that's alongside council tax rises.”

Mills said a particular concern for the regulator is ensuring that the firms it regulates, including high cost lenders and debt advice and collection organisations are ready to support their customers “as people face into this crisis”.

“It's important that firms are able to ensure that their systems and the customer journeys that they have, have the right level of people and the right approach so that they're supporting customers, particularly those who are vulnerable or those who might struggle with debt,” Mills said. 

He explained that in practice, this means having an appropriate number of staff to answer the phones or respond on webchats to support customers.

“The best firms, particularly those who are lending, will proactively reach into their customer base and let them know of the support that they can access, and will guide them through what that support looks like,” Mills said.

Mortgages

Mills noted that mortgage rates have been a particular concern for the FCA throughout the current crisis.

In Mills' view, the UK has a “vibrant and competitive” mortgage market with a “confident and appropriate” mortgage broker system.

"The issue really is less about the products, the design of them and the service, and more about the rate and the impact that it has on some families who might struggle with that,” Mills said.

“What we've done is ensure that firms are looking at their customer base so they can proactively contact customers who might be coming to the end of a historically low rate. So that might be a fixed rate, which has been pretty low, or it could be a tracker rate.”

Last week, the FCA confirmed support for struggling mortgage borrowers.

It said it expects firms to support borrowers in financial difficulty through options such as extending the term of a loan or allowing reduced monthly payments for a temporary period.

Mills also noted that another key area of concern for the FCA in relation to the cost of living is forbearance around other credit loans, like credit cards and high-cost credit.

“There’s lots of different mechanisms that you can have for forbearance when people are struggling with their finances,” Mills said. 

This might include deferring payments, and lowering payments for a period. 

The cost-of-living crisis can lead to circumstances where people might be more prone to being defrauded Sheldon Mills, FCA

However Mills warned these options may not be a solution for everyone: “Obviously, the consequences of that can be higher payments down the line and greater interest that one has to pay on a mortgage.”

Mills explained why the FCA has decided that firms should provide tailored support to borrowers in financial difficulty, rather than focusing on payments deferrals, as it did at the start of the Covid pandemic.

“If you recall, when we went into the pandemic, all of our lives were thrown up in the air and we didn't know effectively what was coming next. 

“We did not know what the impact was going to be on people's livelihoods, their work, and there was a sense of concern as to what the economic activity would be in the country.

“In that context of a widespread impact on everyone in different ways, it was appropriate,” Mills said. 

However he noted that the blanket approach taken to forbearance is not something that could be done in “a steady state”, largely because of affordability.

“It's really important that people are able to afford their lending. And when you start to give forbearance en masse, then you start to sort of mix up the purpose of credit. But the reality is there's a cost to lending. And it's important that that contract is there. 

“So, the tailored support, what that seeks to do is, rather than have a blanket forbearance approach to everybody, you meet each customer and their needs,” Mills said. 

Elsewhere, Mills also highlighted the work the government is doing to regulate buy now, pay later loans and said in terms of it as a product, the regulator is “neutral” on it. 

“What we want to ensure is that lending is done affordably, that it's done with the right sort of purpose, that it's done at fair value,” he said. 

Mills said it is important that buy now, pay later lending is brought “into the system” so that other lenders can see when a borrower is already accessing this form of credit.

“Buy now, pay later providers haven't traditionally been submitting their information and data to the credit information agencies, and it's important that information gets into that dataset so that when anyone is lending to that individual, they know exactly how many debts they have and then they can undertake a sensible affordability assessment,” Mills said. 

Scams

The FCA has recently stepped up its ScamSmart campaign, which helps consumers spot the risk of investment and pension scams. 

“The cost-of-living crisis can lead to circumstances where people might be more prone to being defrauded or scammed because they are worried about how to make ends meet,” Mills said. 

“In particular, we've warned firms about unsuitable promotions and then we've had a number of adverts which were unsuitable, amended or withdrawn. 

“We've had about 8,000 of those amended or withdrawn, and that helps protect consumers from being misled into products which might not meet their needs,” Mills added.

jane.matthews@ft.com