FCA focusing on affordability as part of payday loan regulation, says expert

Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the FCA confirmed that CashEuroNet UK would pay out £1.7 million in redress to almost 4,000 consumers who were loaned more than they were able to repay. CashEuroNet offers short-term credit to customers under the names Quick Quid and Pounds to Pocket.

"The FCA's focus on affordability will continue to impact the consumer credit industry, in particular those firms which have not previously given careful consideration to this issue under the previous regulatory regime of the OFT," he said.

"Any consumer credit firm currently applying for FCA permission to operate in this space should take note and ensure that regulatory messages such as this coming from the FCA are taken into account when creating a regulatory business plan," he said.

The FCA took over responsibility for consumer credit from the Office of Fair Trading (OFT) on 1 April 2014, backed with stronger powers to clamp down on poor practice than those that were available to its predecessor. Oversight of payday lending and debt management services have been a particular focus of its work, and its initial review of debt collection practices at these lenders found examples of "serious non-compliance and unfair practices" by a number of firms.

In a statement, the FCA said that CashEuroNet had "reassessed" all the loans it had granted since 1 April 2014, when the new regulatory regime came into force. An independent 'skilled person' appointed by the regulator had been working with the firm since September 2014 as part of this work, it said. The firm has now made changes to its lending criteria, and will write to the 3,940 customers who were loaned more than they could afford to repay, the FCA said.

Almost 500 customers that were the most seriously affected by CashEuroNet's previous practices will have their current loan balances written off and be paid a cash refund to cover interest paid on the unaffordable element of the loan, according to the announcement. A further 2,523 customers will have their current loan balances written off and 961 will receive a refund of interest only, the FCA said.

Affected Quick Quid and Pounds to Pocket customers would be contacted by their loan provider automatically, with redress due to be paid within the next 60-90 days, the FCA said.

"We are pleased that CashEuroNet is working with us to address our concerns," said FCA retail and authorisation supervision director Jonathan Davidson. "It is important that firms carry out appropriate affordability checks and pay particular attention to fair treatment of those who have trouble meeting their loan repayments."