FCA portfolio letter to firms in the mainstream consumer credit lenders portfolio

On 2 December 2020, the FCA published a letter it had sent to the board of directors of firms assigned to the mainstream consumer credit lenders portfolio.

In the letter the FCA:

• Sets out its view of the risks mainstream consumer credit lenders may pose to their consumers or the markets in which they operate. Firms are asked to consider the degree to which they present such risks and their strategies for mitigating them.
• Outlines its expectation of mainstream consumer credit lenders, including how firms should be mitigating these risks.
• Describes its supervisory strategy and programme of work to ensure that firms are meeting its expectations, and harms are being remedied.

In terms of areas of focus for the FCA, the letter covers: affordability, treatment of customers in arrears, embedding of regulatory changes, transparency of pricing and features and Brexit.

In terms of transparency of pricing and features the FCA states that it expects firms to assure themselves that disclosures and adequate explanations across all distribution channels means that customers can make informed decisions when considering a consumer credit product. In a review of credit cards where the FCA looked at the frequency of, and reasons behind, the withdrawal of introductory promotional rates in 0% balance transfers the regulator found that in a number of firms customers had incurred interest on purchases they made during the statement period and then repaid in full, before the payment due date. The FCA is concerned that some customers may not understand that interest will be charged on new purchases from the day of the transaction, rather than benefitting from an interest-free period until the next payment date. The FCA urges firms to ensure they make clear to consumers all of the features of a credit card, including balance transfer cards.

The FCA also refers to the COVID-19 pandemic and the measures it introduced in April to help consumers financially affected by it. This includes firms making sure that all overdraft customers will be no worse off when compared to the prices they were charged before the new overdraft rules, as well as interest-free overdrafts up to £500. The FCA reminds firms that in all consumer credit products, it expects firms to proactively monitor customer outcomes across their products to look at whether borrowers are using them in a way that suggests they understand them. Where there is evidence they are not, firms should act where they identify harm occurring from a lack of transparency. Where the FCA identifies harm, it will intervene.