FCA strategy for firms providing high-cost lending products
Summary of Development
This letter sets out our updated view on the key risks of harm we believe high-cost firms pose to their customers and the markets in which they operate. You should consider the degree to which your firm presents such risks and take the necessary steps to mitigate them. We also set out our strategy for this portfolio to ensure that firms understand our focus, expectations of them and the related actions in order to manage their risks and reduce harm to consumers.
It is particularly important, with the rising cost of living and increasing risk of financial hardship for consumers, and of consumers facing difficulties repaying debt, that firms proactively take steps to manage and mitigate the risk of poor consumer outcomes and provide the appropriate assistance to customers.
High-cost firms need to start preparing for implementation of our Consumer Duty, which becomes effective from 31 July 2023. We will be supporting the industry with its implementation between now and then; following which we will assess how firms demonstrate they are meeting their updated obligations.
We expect firms in this portfolio to consider how the cost-of-living crisis is likely to impact consumers and take the necessary steps to support consumers and mitigate harm. We set out our expectations of firms and how they should support consumers as they feel the impact of the rising cost of living in our letter to CEOs of lenders dated 16 June 2022. We expect you and the firm’s management to be able to demonstrate the steps you have taken to address the risks we cover in both this letter and the letter of 16 June 2022. For example, we expect you to support customers struggling with personal debt or showing signs of financial difficulty during this period, signposting them to debt advice charities. We are concerned that consumers in this portfolio who are facing financial stress may be more susceptible to purchasing unsuitable products. We wrote to credit brokers and high-cost firms in May 2022 about action that needs to be taken to ensure your financial promotions are clear, fair and not misleading. The current and forecast economic environment may give rise to increased operational risks. You should ensure you have robust governance arrangements and the ability to identify, monitor and manage the operational risks your firm may be exposed to on an ongoing basis.
Link: https://www.fca.org.uk/publication/correspondence/portfolio-letter-firms-high-cost-lending-2022.pdf