FCA portfolio letter to high-cost lenders

FCA has published its portfolio supervision letter in relation to high-cost lending products. The letter sets out the risks FCA believes high-cost firms pose to their customers and the markets in which they operate and asks firms to consider the degree in which they present these risks and, where they do, to take necessary steps to mitigate them.  Unsurprisingly, FCA stresses the importance of both responding to the cost of living crisis and of preparing for implementation of the Consumer Duty.

On the former, it expects firms to be able to show the steps they have taken to address the risks it set out in its “dear CEO” letter to lenders of 16 June as well as this specific letter. On the Consumer Duty, it expects the focus on delivering good outcomes to be at the centre of relevant firms’ strategy and business objectives.

More widely, FCA notes a significant contraction in HCSTC, RTO, guarantor and home collected credit lending as firms have increasingly struggled with past poor lending decisions. Yet it expects consumer demand to grow. So it is critical that firms offer consumers only suitable products, and FCA is aware that as firms improve their practices it is possible that some groups of consumers will no longer be served by the firms in the portfolio.  It will look at strategies for meeting these consumers’ needs.

FCA will be focusing on the governance of firms and on how they oversee their regulated activities including the role of Boards and Senior Managers in the process.

The letter then goes on to set out the elements of the consumer journey that it will focus on in its supervisory work. Responsible lending will remain a focus, in terms of promotion and description of products, how firms approach affordability and sustainable borrowing for consumers. FCA will continue also its focus on treatment of borrowers in financial difficulty, and will also be looking to see improvements in firms’ root cause analyses on upheld complaints. On an individual level, it will be looking at how Senior Managers perform their roles and the role of the Board.

Emma Radmore