The FCA has published its thematic review of consumer credit firms, which they refer to as HSTC firms. HSTC firms are now under closer regulation, and many will have to make serious changes to comply with the FCA.
The FCA has published its thematic review of consumer credit (what the FCA terms HSTC). The review examined how high-cost short-term credit (HCSTC) firms deal with customers in arrears and whether they treat their customers fairly.
The FCA took over regulatory responsibility for consumer credit in April 2014, and has gathered evidence of market practice over the course of a year. For consumer credit firms, this has been a period of significant change as they have worked to embrace the changes and new requirements. This means that the review covers a considerable period of change and of changing regulation.
The review is highly critical, with the FCA stating it found evidence of serious non-compliance and unfair practices. The key findings from the study include:
- Firms that had engaged in misleading practices to obtain monies from customers in arrears. In some cases FCA investigations are still ongoing
- None of the firms reviewed were sufficiently prepared for FCA regulation and they had not yet adapted their businesses to meet the regulatory standards. However the FCA does comment that a lot of work is being undertaken by most firms to raise standards
- Firms had experienced systems failings that had led to customer detriment. Many of these were only dealt with as a consequence of FCA’s review and firms were too often failing to consider the impact on their customers
- Many firms were poor at recognising customers with financial difficulties or those who were vulnerable
- Some firms pushed for immediate or unsustainable repayment, whilst other firms did explore forbearance options and sustainable repayment arrangements with customers
- Firms’ communications with their customers were sometimes unclear or misleading
- Default and arrears fees and charges had reduced in most of the firms.
What are the FCA’s next steps?
The FCA has given feedback to each of the firms in its sample, and in response to the feedback, firms have made improvements to their systems and controls, and how they treat their customers.
They have also investigated some firms where it found unfair practices. Swift action has been taken to stop poor practice and mitigate risk, and secured voluntary commitments to provide redress to customers who have suffered harm as a result of unfair treatment.
In addition to this, the FCA authorisations process for HSTC firms has started with applications submitted for authorisation on 28 February 2015. Firms that cannot demonstrate that they meet the threshold conditions will be refused.
HSTC firms should take careful note of the findings of this review and consider what improvements they may need to make to their business practices in light of it, including whether:
- Their systems are fit for purpose
- They have established and implemented clear, effective and appropriate policies and procedures.
The FCA’s expectations of high-cost short-term lenders, are set out clearly in its ‘Dear CEO’ letter sent on 21 January 2015.