Payday lenders and other high cost short term lenders will be the subject of an in-depth thematic review into the way they collect debts and manage borrowers in arrears and forbearance.
The review will be one of the very first actions the Financial Conduct Authority (FCA) takes as regulator of consumer credit, which begins on 1 April 2014, and reinforces its commitment to protecting consumers – one of its statutory objectives.
It is just one part of FCA’s comprehensive and forward looking agenda for tackling poor practice in the high cost short term loan market.
Martin Wheatley, FCA chief executive, said: “Our new rules mean that anybody taking out a payday loan will be treated much better than before. But that’s just part of the story; one in three loans go unpaid or are repaid late so we will be looking specifically at how firms treat customers struggling with repayments.
“These are often the people that struggle to make ends meet day to day, so we would expect them to be treated with sensitivity, yet some of the practices we have seen don’t do this.
“There will be no place in an FCA-regulated consumer credit market for payday lenders that only care about making a fast buck.”
This area is a priority because six out of ten complaints to the Office of Fair Trading (OFT) are about how debts are collected, and more than a third of all payday loans are repaid late or not at all – that equates to around three and half million loans each year. The new FCA rules should reduce that number, but for those that do fail to make repayments and are keen to get their finances back on track, there will now be a discussion about the different options available rather than piling on more pressure or simply calling in the debt collectors.
The review will look at how high-cost short lenders treat their customers when they are in difficulty. This will include how they communicate, how they propose to help people regain control of their debt, and how sympathetic they are to each borrower’s individual situation. The FCA will also take a close look at the culture of each firm to see whether the focus is truly on the customer – as it should be – or simply oriented towards profit.
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