The Financial Conduct Authority’s regulation of consumer credit, beginning on 1 April 2014, included subjecting payday lenders to an in-depth thematic review into their arrears management practices.
The review was one of the first actions the FCA took in order to bolster the statutory objective behind its creation - the protection of consumers.
The FCA made clear that this area of finance is a priority for the newly created regulator, citing how six out of ten complaints to the OFT are about how debts are collected.
Furthermore, the FCA stressed the fact that over a third of all payday loans are repaid late or go unpaid.
How Big is the Payday Lender Debt Collection Issue?
Based on the size of the payday loan market – the Competition Commission estimated the number of loans made to be 10.2m, with the value of loans issued at £2.8bn a year – the FCA was therefore clear from the start of the review that this is an industry in which many consumers have a stake in.
FCA Chief Executive Martin Wheatley emphasised the prospective regulatory results of the review, promising that consumers taking out payday loans will be “treated much better than before”.
In particular, he noted how some of the industry practices the FCA had reviewed had failed to be sufficiently sensitive to what can be an extremely difficult financial situation for consumer borrowers.
What Did the Payday Lender Debt Collection Review Consider?
From 1 April 2014 the review assessed the high-cost short-term lending sector.
This included paying visits to the UK’s largest payday lenders and analysing internal culture, assessing the marketing models of lenders and banning any which downplayed the risks of taking out high-cost short-term loans.
Furthermore, the review inherited a number of investigations from the outgoing consumer credit regulator, the OFT.
The FCA’s aim was to ensure consumer credit providers have sustainable business models underpinned by a culture based on doing the right thing for the customer.
It was expected that approximately one quarter of payday lenders would decide that they could not meet the FCA’s higher consumer protection standards and would consequently leave the market. Inevitably, among those firms it was expected that there would be a number of businesses utilising misleading marketing and/or insensitive debt collection practices.
Following the start of the review, The Money Shop – the UK’s second largest payday lender – has agreed to pay £700,000 compensation to 6,247 customers. Mistakenly breaching its own lending criteria, Dollar Financial Group, which trades as The Money Shop, had approved loan amounts its lending criteria should not have allowed.
For specialist advice regarding FCA regulations, investigations or reviews contact James Crighton email@example.com or telephone 0207 611 4848.