Context
The FCA has issued a letter to the Mainstream Consumer Credit Lenders (MCCL) portfolio to set out the key areas of risk for customers together with how the FCA expect firms to mitigate risks. The letter also describes the FCA’s supervisory strategy and the programme of work to ensure its expectations of firms are met.
The MCCL portfolio is made up of firms providing Consumer Credit Act regulated unsecured overdrafts, loans or credit cards and contains firms with a wide range of business models and funding sources. The FCA has emphasised the letter is relevant to all firms that undertake mainstream lending (active or inactive), including those firms which are housed within other portfolios.
Key points to note
- The FCA considers the following to be key drivers of potential harm within this portfolio
- Affordability – business models should be designed to deliver good customer outcomes with robust affordability assessments playing a vital part in this. The FCA’s affordability rules set out that a firm must consider a borrower’s ability to make repayments under an agreement, without the repayments having a significant adverse impact on the borrower’s financial situation.
- Treatment of customers in arrears – firms should ensure they have clear, effective policies and procedures for customers who fall into arrears. Additionally, they should ensure the appropriate skills and resources are in place to deliver these – both quantitatively and qualitatively – and they are treating customers fairly.
- Transparency of pricing and features – firms should assure themselves that disclosures and adequate explanations across all distribution channels mean that customers can make informed decisions when considering a consumer credit product.
- The FCA considers firms should strive toward outcomes that ensure the following:
- Customers are treated with forbearance and due consideration
- Customers are given sustainable arrangements
- Customers are not pressurised into repayment of debts
- Customers are protected from escalating debt once in a forbearance agreement with the firm
- Firms recognise vulnerability and respond to the particular needs of vulnerable customers
- Customers are given time to assess options and, if necessary, seek appropriate debt advice
- Customers are referred to debt advice if deemed appropriate
Next actions
Firms which offer credit lending facilities should review their activities against these identifed key drivers of harm and consider whether there are any weaknesses in existing systems and controls which might prevent the delivery of the expected outcomes for clients.