FCA urges lenders to support consumers in Dear CEO letter

FCA urges lenders to support consumers in Dear CEO letter

The Financial Conduct Authority has written to more than 3,500 lenders to remind them of the standards they should meet as consumers battle with the rising cost of living. 

In a Dear CEO letter today (June 16), the FCA said it is critical that lenders act now to meet the standards the regulator expects to support borrowers, including those in financial difficulty. 

“We want to ensure that our expectations of you are clear and to urge you all to support your customers,” it wrote. “We need to engage and work effectively as an industry to understand the changing pressures on consumers – now and in the uncertain months ahead. 

“We must ensure that the financial services sector serves customers – especially those who might struggle with their finances during this time.”

The City watchdog said many consumers will feel the impact on their personal finances, but it is particularly concerned that consumers least able to bear the rises will be hardest hit. 

While the headline average inflation rate is at 9 per cent and rising, the Institute of Fiscal Studies estimated that the poorest households may face average inflation rates as high as 14 per cent. 

“This is in the context of a quarter (27 per cent) of the population having low financial resilience, a figure likely to increase over the coming months,” the regulator wrote. 

“At the same time, we expect to see higher demand for credit, although rising interest rates, and lower disposable income, may make borrowing less affordable, or unavailable, for some. Firms will also see a wider group of consumers in financial difficulty, who will find it harder to pay their debts.”

The FCA said some of these consumers will be in vulnerable circumstances or may be experiencing financial difficulty for the first time and firms need to remain alert to the changing situation of their customers and target their efforts in response. 

FCA executive director of consumer and competition Sheldon Mills, said: “Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months. Early action is important for those struggling with debt. 

“We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.”

The regulator said it has looked at how borrowers in financial difficulty are treated by lenders and found examples of lenders providing the right support to their customers. 

However, it argued that most firms need to have better conversations to fully understand their customers’ individual circumstances, so they can provide appropriate tailored support and ensure that arrangements to pay back debt are sustainable.

Mills added: “The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.”