Recent regulatory developments of interest to financial institutions with focus on consumer finance.
Contents
- High-cost credit: FCA review into relending
- COVID-19: FCA CP20/16 on debt advice levy rates for 2020/21
High-cost credit: FCA review into relending
The UK Financial Conduct Authority (FCA) has published its findings following a review, which was carried out before the coronavirus pandemic, into relending by firms offering high-cost credit.
The review highlights concerns about poor practices by some firms and notes that nearly half of consumers regretted borrowing more money. As firms in this sector begin to lend again, the report sets out the FCA's expectations on how they must treat consumers.
The review raises several concerns about firms' conduct, including poor practice in 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. The FCA is concerned about the failure to balance these messages with the risks. There are also concerns about the increased costs to the consumer of refinancing compared with other ways of accessing further credit.
The report also calls out concerns about behaviour which suggests some customers may be trying to deal with financial difficulties through further borrowing. In these cases, the FCA expects the firm to assess whether further borrowing is in the customer's best interests. They should do this by considering the customer’s overall financial situation and whether forbearance or debt advice might be more appropriate than additional lending.
Firms are expected to review their relending operations in the light of the FCA's findings detailed in the report and make any necessary changes to improve customer outcomes.
Annex 1 to the report consists of a consumer report by PwC, which the FCA commissioned to help understand repeat borrowing in the high-cost credit market. Annex 2 sets out the relevant Handbook rules and guidance, as well as statutory provisions, and firms are advised to read it in conjunction with the review's findings.
COVID-19: FCA CP20/16 on debt advice levy rates for 2020/21
On 5 August 2020, the FCA published a consultation paper, CP20/16, on debt advice levy rates for 2020/21 to provide additional funding for the Money and Pensions Service (MaPS) and the Devolved Authorities in light of COVID-19.
The FCA explains that the Department for Work and Pensions (DWP) has notified it that it must collect an additional £14.2 million for MaPS in 2020/21 for the provision of debt advice in England. This additional levy is essential to enable MaPS to respond to the COVID-19 crisis and the expected increase in requirements for debt advice. In addition, HM Treasury has notified the FCA that it must collect a further £2.087 million for the provision of debt advice in the Devolved Authorities, to maintain capacity in light of COVID-19 within Scotland, Wales and Northern Ireland.
Therefore, the FCA is consulting on the rates at which it proposes to charge its levies for the additional amount of debt advice funding that the DWP and HM Treasury have notified it about.
The consultation closes on 30 September 2020. Subject to obtaining board approval in November 2020, the FCA plans to publish feedback in November or December 2020.
Firms that come under the Home Finance (A.2) and Consumer Credit (CC.3) fee-blocks will be required to pay the levy within 30 days of the invoice date. They will be invoiced from December 2020 on the basis of the additional fees and levies.
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