FCA chief warns consumer lenders to treat customers fairly

Andrew Bailey, chief executive of the FCA, said consumer credit had caused the FCA more work than it expected when it took over regulation of the market in 2014. Consumer credit has grown partly because interest rates have been low for so long, changing the way consumers and businesses behave, he said.

Bailey told the Finance & Leasing Association annual dinner: “We have a lot going on. I have to be honest with you: I think the agenda we now see on consumer credit is a lot bigger than the one the FCA saw in 2014 when it took over responsibility. This is a product of experience. But it is also a reflection of just how important consumer credit is to our society.”

Much of the growth in consumer lending has come from credit-worthy borrowers taking out products such as 0% credit cards and car loans, Bailey said. But he warned that the biggest risks lay in high-cost loans to people with little means to repay.

“It is reassuring that credit growth has not been disproportionately driven by those who are most vulnerable. But, I am not sanguine here,” Bailey said. “Even though the high cost credit markets are small as a share of total consumer credit, and even though they are not the fastest growing, as a conduct regulator with a consumer responsibility my conclusion from our work is that the main issues and problems are in these markets.”

Bailey laid out his concerns on the day the FCA announced new rules to protect vulnerable credit card borrowers and ordered Provident Financial to pay almost £170m to customers misled over the cost of a repayment plan. The FCA also fined the subprime lender almost £2m.

He said all firms should make sure any lending is affordable and sustainable. The FCA’s new rules on credit card loans require lenders to help customers in persistent debt, including waiving interest and charges. The regulator estimated the changes would cut payments by borrowers and profits for lenders by up to £1.3bn a year.

“We also want firms to monitor customer accounts and act promptly where there are signs of actual or potential financial difficulties, and to treat customers in default or arrears difficulties with forbearance and due consideration,” Bailey said.

Bailey said high-cost credit was the FCA’s chief concern because it was easy for already indebted customers to go further into debt because of high fees and charges.

“We are concerned about the cost and terms of such credit and the propensity for over-indebtedness. And these things are linked. Some of the terms encourage over-indebtedness with little or no incentive to pay down debts.”

In October the FCA ordered BrightHouse to repay £14.8m to 249,000 customers who had taken out expensive loans to pay for household items such as furniture and white goods. Bailey said he still had concerns about how the so-called rent-to-own market operates.

He said the FCA was also examining the market for overdrafts and car finance deals as part of its wider work on consumer credit.