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FCA urged to tighten responsible lending guidance after £34m redress

FCA urged to tighten responsible lending guidance after £34m redress

Citizens Advice has called on the Financial Conduct Authority (FCA) to force every payday lender to carry out rigorous financial checks on potential borrowers.

The charity’s statement comes after the FCA ordered CFO Lending to redress £34m to customers after finding that the payday lender had undertaken unfair practices.

CFO Lending’s failures included: excessive use of continuous payment authorities to collect outstanding balances, failing to treat customers in financial difficulties with due forbearance and sending threatening and misleading letters.

The FCA also found that CFO Lending had failed to assess the affordability of guarantor loans for customers.

Gillian Guy, chief executive of Citizens Advice, welcomed the FCA’s action and praised the regulator for cleaning up the market significantly.

However, he called for further regulation.

“…Our recent evidence shows a quarter of borrowers say they were not, or could not remember being asked basic questions about their ability to pay back their payday loan.

“We want the FCA to tighten up its responsible lending guidance even further – forcing every single payday lender to carry out rigorous financial checks on potential borrowers.”

In August last year, the FCA enforced new regulations that ordered online payday lenders to publish details of their products on at least one FCA-authorised price comparison site.

Since then, payday firms such as Dollar Financial UK, Cash Genie and CashEuroNet UK have all agreed to redress customers over unfair practices.

After CFO Lending agreed to the redress, the FCA said it was now satisfied with their progress and the way it had addressed their previous mistakes.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said that it was unfortunate the Citizens Advice report failed to acknowledge the significant changes to the regulated short-term lending sector.

“All CFA members carry out rigorous affordability checks before issuing a loan to a customer. 

"So we must be careful not to assume that because someone cannot remember being credit checked it did not happen.

Short-term lenders are the only firms to use real-time information from credit reference agencies and affordability models based on the income of prospective borrowers.

"These measures ensure that only individuals who can afford to repay are approved for credit."

Russell concluded by adding: “However, we are concerned that some less scrupulous firms could be breaking the strict rules on lending. 

"If true, this is a matter for the FCA and just as we report any poor practice, we would encourage Citizens Advice to present its own evidence to the regulator."

The FCA were contacted in response to Citizens Advice’s statement, but declined to comment. 

This article was amended on 21/09/16 following a comment sent by the Consumer Finance Association. 

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