The cost of living is rising higher and credit is along for the ride. With no end in sight to rising interest rates and inflation, the UK Financial Conduct Authority (FCA) is asking lenders to help consumers during a difficult time.
In a release, the FCA said it was writing to over 3500 lenders asking these firms to “make sure borrowers struggling with payments and customers in vulnerable circumstances can access the help they need.”
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
“Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months. Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve. The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.”
The FCA is asking that lenders:
- Provide your customers with an appropriate level of care and support. The level of care needed for customers who have characteristics of vulnerability may be different from that for others and you should take particular care to ensure they are treated fairly. Our VCG makes clear what the standards set by our Principles mean for firms.
- Give borrowers in financial difficulty appropriate tailored forbearance that is in their interests and takes account of their individual circumstances.
- Support borrowers showing signs of financial difficulty or struggling with debt, by making them aware of and helping them access money guidance or free debt advice.
- Ensure that any fees and charges levied on borrowers in financial difficulty are fair and do no more than cover your costs.
- Make sure your approach to taking on new borrowers takes account of the financial pressure they may be facing and the impact on their expenditure.
- Consider what more you can do to encourage mortgage borrowers to think about switching to a less costly option where that is available.
- Help consumers avoid falling victim to scams or illegal money lending.
The letter was also sent to buy now – pay later (BNPL) firms – even though some of these firms are not currently regulated. The FCA encouraged these firms to adhere to the guidance provided in the letter.
Following the FCA statement, Neil Kadagathur, co-founder and CEO of Creditspring said that responsible lending is vital if “millions of vulnerable households are going to emerge from the cost of living crisis unscathed.”
“The FCA’s guidance for lenders and upcoming reform of the Consumer Credit Act is extremely welcome; to protect borrowers, all financial services firms need to be scaling up their affordability checks whilst simplifying language and improving transparency, said Kadagathur. “The cost of living crisis is having a disproportionate impact on vulnerable households and younger people – almost half of 18-34-year-olds are terrified for their financial future. The onus is on lenders to not only provide short-term financial support, but also boost financial education…”
Kadagathur added that there are 14 million borrowers in the UK that struggle to access mainstream credit paying “extortionate rates.”