LONDON (Reuters) – Britain’s financial watchdog has warned providers of high cost credit to curtail risky lending and better protect consumers or face regulatory action.
Lawmakers have been piling pressure on the regulator to protect vulnerable people at risk of paying excessively high interest charges, particularly since the financial crisis.
The Financial Conduct Authority (FCA) has written a ‘Dear CEO’ letter to providers of products including guarantor loans, doorstep lending and “rent-to-own” credit, warning firms it would be stepping up its monitoring of the sector.
The FCA said its key concerns included insufficient affordability checks and the offer of frequent refinancings to consumers who may not be able to keep up with repayments.
Firms must also consider whether bad practices, including offering financial incentives to executives for taking higher risks, were leading to more consumer harm, the regulator added.
The letter on Wednesday comes a day after the FCA confirmed it will cap prices on goods bought on rent-to-own credit from April.
Rent-to-own firms charge consumers a weekly sum for goods such as televisions and washing machines that can see customers pay several times more than the up-front cash price.
The FCA has made tighter regulation of Britain’s high cost credit sector one of its top priorities since publishing an investigation into the market last year.
It has also previously capped interest charges in the payday lending sector. The move has increased pressure on the business models of lenders operating in this space, with one of the UK’s largest providers, Wonga, later falling into administration.
Separately, the FCA said earlier on Wednesday that its closer scrutiny of credit card providers had saved consumers 80 million pounds in fees.
The FCA said it will write again to high cost lenders early in 2021 to update them on its supervision plans and with an assessment on the impact of its interventions.
“I believe the FCA knows that certain practices that they don’t like are being carried out at present,” Roger Gewolb, Executive Chairman of FairMoney.com, told Reuters, suggesting a desire on the part of the regulator to “up its game” in a number of key areas including protecting vulnerable customers.
“However, the FCA does not have all the evidence it needs to stop these firms in their tracks and hence this letter acts in giving firms strong warnings to better adapt their business models and cultures,” he said.
(Reporting by Iain Withers, additional reporting by Sinead Cruise; editing by Emelia Sithole-Matarise)