CM September 2020

CMNEWS
A round-up of news stories from the
world of consumer and commercial credit.
Written by – Sean Feast FCICM
High-cost lenders slammed
in new FCA review
HIGH-cost credit firms are not taking
affordability assessments seriously
enough on repeat borrowing, and
poor practice in the use of online
accounts and apps are encouraging
consumers to borrow more.
These are two of the key findings of a review
by the Financial Conduct Authority (FCA)
into relending by firms that offer high-cost
credit which also suggests that nearly half (45
percent) of customers said they regret taking
out additional lending, a figure that rises to 60
percent for certain products.
This is in the context of research from
StepChange Debt Charity that found that since
the start of the pandemic, nearly one million
people have used high cost credit products as a
safety net to meet every day living costs.
The long-awaited FCA review identified that
most firms had more repeat customers than
first-time borrowers, with repeat borrowers
accounting for more than 80 percent of all
customers at many firms.
The FCA said it was particularly concerned
that some customers may be managing
financial difficulties through further borrowing.
The report states: ‘Additional borrowing should
“In the
meantime,
the FCA can
further curb the
harm caused
by high-cost
credit products
by tightening
lending rules,
looking harder
at the product
features that
can trap people
in debt and
improving
forbearance
measures.”
Adam Butler, Public
Policy Manager at
StepChange
“Repeat
borrowing could
be a strong
indicator of levels
of debt that are
harmful to the
customer.”
Jonathan Davidson,
Executive Director of
Supervision
not be used, in effect, as a debt management
solution. When considering an application
for refinancing where the firm is aware that
the customer is a regular user and appears
dependant on high-cost credit, we expect
the firm to consider whether forbearance or
debt advice might be more appropriate than
additional lending.
The FCA also said some firms were not
taking responsibility to assess affordability for
repeat borrowers seriously enough. Some firms
suggested that consumers could use additional
borrowing, for example to take a holiday, and
reinforced the message by including imagery
of exotic locations. Some firms also appeared
to use ‘nudge’ techniques such as appealing
to social norms by conveying a message that
relending is common practice and normal
behaviour.
Jonathan Davidson, Executive Director of
Supervision, Retail and Authorisations, says
he has significant concerns: “Repeat borrowing
could be a strong indicator of levels of debt that
are harmful to the customer,” he says.
“Before the pandemic we saw increasing
numbers of complaints about high-cost lenders’
relending practices, which showed that firms
had failed to adequately assess affordability,
and they were not relending in a way that was
sustainable for customers. We expect firms to
review their relending practices in light of our
findings as they start to lend again, and to make
any necessary changes to improve customer
outcomes. We will continue working with firms
to raise standards, and we will continue to take
action where we see harm.”
Adam Butler, Public Policy Manager at
StepChange, says it is more vital than ever
that fair and sustainable alternatives to these
products are made available as soon as possible:
“The Government must act quickly to develop a
national no interest loan scheme, which would
provide a mechanism to influence access to
affordable credit more directly.
“In the meantime, the FCA can further curb
the harm caused by high-cost credit products
by tightening lending rules, looking harder at
the product features that can trap people in debt
and improving forbearance measures.”
Advancing the credit profession / www.cicm.com / September 2020 / PAGE 6