FCA warns payday lenders over loans and compensation

paperworkFollowing an increase in customer compensation claims after a crackdown on payday lenders, and the recent collapse of Wonga, the Financial Conduct Authority (FCA) has sent a ‘Dear CEO’ letter to providers of high-cost, short-term credit (HCSTC).

In the letter, FCA director of supervision, Jonathan Davidson, asks these firms to assess their lending activity to determine whether their creditworthiness assessments are compliant, and whether borrowers should be reimbursed.

The letter also asks the lending companies to tell the FCA if the cost of compensating customers with grievances will leave the firm unable to meet their financial commitments.

The warning comes amid an increase in complaints about unaffordable lending, including the risks in relation to repeat borrowing and a pattern of dependency on HCSTC that's detrimental to the borrower. The letter goes on to state that firms should ensure they are making responsible assessments of the sustainability of borrowing.

An FCA policy statement (PS18/19) [pdf] with amended rules and guidance on assessing affordability in consumer credit comes into force on 1 November.

Read the FCA letter [pdf]

See also