From: RegTech Analyst
The UK’s top financial markets regulator is concerned about credit firms’ practices after a review revealed that relending often leave vulnerable customers worse off.
Having looked into the journey of around 250,000 customers, analysed firms’ loan books and their marketing materials, the Financial Conduct Authority (FCA) is worried that relending causes considerable financial pain for the most vulnerable people in the UK and unearthed poor practices by some firms.
The poor practices expressed in the review included the use of online accounts and apps to encourage consumers to borrow more, and marketing messages which emphasised the ease, convenience and benefits of taking more credit and failed to highlight the considerable risks of relending.
For instance, some lenders suggested that consumers could use additional borrowing, for example to take a holiday, and reinforced the message by including imagery of exotic locations.
The review also found that nearly half of the consumers having borrowed more money regretted doing so and that the level of debt increased after taking a second loan, leading to them experiencing financial difficulties as well as anxiety and stress.
Now, as the credit sector is unfreezing after the coronavirus pandemic put a momentary hold of parts of the industry, the FCA is reminding credit firms of what is expected of them.
“We have significant concerns that repeat borrowing could be a strong indicator of levels of debt that are harmful to the customer,” said Jonathan Davidson, executive director of supervision, retail and authorisations at the FCA.
“Before the pandemic we saw increasing numbers of complaints about high-cost lenders’ relending practices, which showed that firms had failed to adequately assess affordability, and they were not relending in a way that was sustainable for customers.
“We expect firms to review their relending practices in light of our findings as they start to lend again, and to make any necessary changes to improve customer outcomes. We will continue working with firms to raise standards, and we will continue to take action where we see harm.”
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