Commenting on the Financial Conduct Authority's agenda and priorities for consumer credit, published today,
John Coley, financial services risk director at PwC said:
“The FCA has published proposals that potentially have a significant impact on firms operating in the consumer credit sector. These include proposed changes for assessing creditworthiness, feedback on its rules limiting so-called payday-loans, and insights into its continuing work into the motor vehicle finance sector.
“The headline news around loans that provide high-cost, short-term credit, is that the FCA has decided to leave the existing price cap in place and review it again in 2020. However, the FCA has identified particular concerns in the rent-to-own, home-collected credit and catalogue credit sectors. It also says there is a case for fundamental reform of unarranged overdrafts stating that, 'maintaining the status quo is not an option.' The FCA will consult on action to address these concerns in spring 2018.
“More widely, while the FCA notes the majority of existing affordability processes appear appropriate, it is nevertheless proposing changes as there is, 'evidence both of under compliance with our rules but also of firms having procedures which may be unnecessarily costly or restrictive.'
“Some may be disappointed that the FCA is not proposing more detailed or prescriptive rules. However, the FCA has identified a number of affordability risks and lenders will need to review their processes carefully in light of these to ensure they are aligned to regulatory expectation and that they are sufficiently thorough and robust.
“The FCA has also published more detail on its work into the motor finance sector, setting out the issues that it is considering. Key areas include affordability, whether there are conflicts of interest between lenders and dealers, the clarity and transparency of information provided to customers and risks around asset valuations. The FCA will publish an update on this work in the first quarter of 2018.
“Overall, a number of consumer credit firms have already had to make substantial changes to their processes. However, today's proposals highlight that further action is required. Firms operating in the consumer credit sector should reflect carefully on these measures and their level of alignment to them. Finding a workable and pragmatic process is always important, but lending responsibly is essential.”
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