INSIGHTS ¦ FCA portfolio letter for consumer lending



The Financial Conduct Authority (FCA) has issued a strategic letter to Consumer Lending firms, emphasizing the need for a thriving, innovative, and safe Consumer Lending market. The letter outlines the current state of the market, key risks, and the FCA’s priorities for improving consumer access to affordable credit and ensuring that lending practices are responsible and fair. It specifically addresses high-cost lending, mainstream consumer credit, and credit unions.

Key Points

  1. Consumer Lending Market Importance: The Consumer Lending market is crucial for the UK economy, providing essential services to vulnerable consumers.
  2. Market Assessment: The FCA is now assessing three portfolios as a group—High-Cost Lending, Mainstream Consumer Credit Lending, and Credit Unions—to share a market-level view and improve industry practices.
  3. Innovative Support: The FCA encourages innovation in the market through the Regulatory Sandbox, Innovation Pathways, and TechSprints to promote safe and affordable credit access.
  4. Regulatory Actions: Recent supervisory actions were taken against firms that had inadequate creditworthiness assessments, relied heavily on relending, or failed to offer sufficient support to consumers in financial hardship.
  5. Market Changes: Significant changes have occurred in the Consumer Lending market, including a contraction in high-cost lending and a growth in credit union memberships and lending.
  6. Consumer Vulnerability: A growing number of consumers are financially vulnerable, exacerbated by economic pressures such as higher interest rates and inflation.
  7. Focus Areas for Regulation: The FCA is focused on reducing harm, setting higher standards, and promoting competition and positive change.
  8. Financial Crime Risks: The FCA is concerned about the increasing risks of illegal money lending and domestic financial abuse in the current economic climate.
  9. Governance and Oversight: Firms are reminded of their responsibilities under the Senior Managers and Certification Regime (SM&CR) to ensure effective governance and oversight.
  10. Complaints and Redress: Effective management of complaints and redress requirements remains a priority, with expectations for improvements across the sector.
  11. Consumer Duty Implementation: The Consumer Duty requires firms to ensure fair treatment of consumers, with ongoing assessments and adjustments as needed.
  12. Future Policy Changes: Anticipated changes to the Consumer Credit Act and other regulatory frameworks aimed at maintaining consumer protection while fostering a competitive market.
See also  INSIGHTS ¦ Strengthening Protections for Borrowers in Financial Difficulty: Consumer Credit and Mortgages

Key Statistics

  • £6.5 billion increase in total lending from June 2021 to June 2023 in the Consumer Lending market.
  • £100 million growth in pawnbroker lending since 2019.
  • £500 million increase in credit union lending since 2021.
  • Over 250 firms have exited the high-cost market since 2019.
  • £54.4 million in redress secured for over 228,000 consumers as of December 2023.

Key Takeaways

  • Firms must engage in responsible lending practices that consider the affordability and creditworthiness of consumers.
  • Innovation in lending practices should be encouraged, but must not compromise consumer safety or regulatory standards.
  • Continuous improvement in governance and oversight is necessary to prevent financial and operational risks.
  • Effective complaint management and redress practices are critical for consumer trust and regulatory compliance.
  • Firms should be prepared for upcoming changes in regulations and ensure their practices align with new consumer protection standards.
  • Monitoring and intervention will be prioritized for firms that fail to meet the standards set out by the FCA.
  • Access to affordable credit should be a priority, but not at the expense of consumer financial health.
  • The rise in financial crime such as illegal money lending and financial abuse requires vigilant and proactive measures by firms.
  • The Consumer Duty represents an ongoing commitment to fair treatment and should be actively monitored and enforced.
  • Firms should be proactive in addressing any deficiencies in their operations that could affect consumer outcomes.
  • The evolving economic landscape will continue to pose challenges for Consumer Lending firms, necessitating agile and consumer-focused responses.
  • Continued collaboration with government and industry stakeholders is essential to address and mitigate market-wide issues.

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