Out-Law News 2 min. read

FCA: 'too many' payday lenders failing to treat customers in financial difficulty fairly


Practices at payday lending firms are beginning to improve, but "too many" lenders are still treating customers that are struggling to make repayments unfairly, according to a review by the Financial Conduct Authority (FCA).

The FCA has been carrying out an ongoing review of debt collection practices at payday lenders and other high cost, short term credit providers since it began regulating them in April 2014. In a report of its work that covered 60% of the market, the FCA said that it had found “serious non-compliance and unfair practices” by all of the firms that it had reviewed.

A number of firms have already been the subject of regulatory action, which in some cases has resulted in the payment of compensation to customers, the FCA said. It will also consider firms' practices as part of their applications for authorisation under the new consumer credit regime, and only authorise those that meet the requirements, it said.

"Our rules are designed to ensure loans are affordable; that customers who get into difficulty are treated fairly and that they are not pressurised into unaffordable and unsustainable repayment plans," said the FCA's director of supervision and authorisations, Tracey McDermott.

"This segment of the industry has, for too long, been in the spotlight for the wrong reasons. It is essential that the more customer-focused approach we have started to see is maintained and embedded as we go forward. The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market," she said.

As part of its review, the FCA selected a sample of online and high street lenders holding a market share of around 60%. It scrutinised each firm's procedures, visited their offices to interview and observe managers and staff, listened to calls with customers and reviewed case files to see the experiences that customers who were struggling to repay loans had with firms.

In each case, the FCA found some examples of "serious non-compliance and unfair practices", which in some cases caused customers "serious detriment and financial loss". In three cases in particular, it found a backlog of letters and documentation from vulnerable customers that had fallen behind in repayments. Some of these customers were still being pursued by collection agents, despite a legal requirement that they be given 'breathing space' if they were able to provide evidence that they were working with a debt adviser to manage their debts.

However, the FCA said that the industry was "beginning to take a more customer-focused approach" to business in general. Examples of improvements taken by firms over the previous 12 months included changes to senior management, training staff to deal with struggling customers and improving monitoring, compliance and risk management practices.

Financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that the FCA's review could be "considered as the death knell" for lenders that had not improved their practices despite previous warnings. This could have a detrimental impact on those customers that were unable to access finance from other lenders, he said.

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