Response to FCA Letters – Mainstream Consumer Credit Lenders

The FCA portfolio letter on Consumer Duty implementation for Mainstream Consumer Credit Lenders (MCCL) is split in two main parts:

• Annex 1 focuses on the application of the Duty to firms in the MCCL portfolio sector and outlines the FCA’s expectations of firms to evidence good outcomes. The FCA reminds firms that the portfolio strategy letter for MCCL portfolio from June 2022 remains relevant and firms should consider carefully the key risks of harm outlined.

• Annex 2 outlines the key things firms in the MCCL portfolio need to consider by reference to the four outcomes under the Duty.

The letter also sets out the following:

• Feedback from FCA’s recent review of firms’ implementation plans – the FCA highlights that (i) firms need to focus on effective prioritisation for the implementation work, aiming at reducing risk of poor outcomes; (ii) firms should ensure that existing policies and processes are adequate and (iii) ensure efficient information sharing with other firms.

• The FCA’s approach to supervising the Duty in the MCCL portfolio and planned next steps – the FCA has stated that they are developing a strategy for MCCL Portfolio to embed the Duty in their Supervision work and tackle key harms, as well as metrics to measure the impact of the Duty in the sector. The FCA will include additional engagement with firms on the implementation of the Duty through a variety of methods.

Annex 1 – How the Duty applies to firms in the MCCL portfolio

Whilst this information is a helpful summary, it does not impose new requirements.

• Evidencing good outcomes - The FCA has reminded firms that they must be able to evidence the outcomes their customers are getting – firms need to monitor and review outcomes, identify where Good Outcomes are not achieved and assess why and have processes in place to allow them to adapt and change in order to prevent identified issues from recurring.

• Expectations for Board oversight – The FCA has stressed the importance of oversight and reminded firms that at least once a year, the Board or governing body should review and approve an assessment of how well the firm is complying with the Duty. It should also make sure your firm’s strategies, governance, leadership, processes, and people policies (including incentives at all levels) lead to Good Outcomes for customers.

Annex 2 – Key things for firms in the MCCL portfolio to consider

This Annex is focused on the credit card and personal loan lending activity of firms in the MCCL portfolio, looking at each of the four outcomes:

1. Products and services

The FCA has reminded firms of the importance of ensuring that lending products and services are fit for purpose and that the distribution strategy is appropriate. The FCA has highlighted instances where products are sold to customers outside the original target audience.

• Example - lending products being sold to a different cohort of customers with poorer credit scores, where the products may not be suitable for a particular customers’ circumstances and may lead to poor customer outcomes.

2. Price and Value
The FCA has stressed again the importance of firms approach to affordability and has warned that inadequate assessments of affordability would likely result in customer harm. Lenders should be focused on delivering outcomes that ensure customers are not over-indebted by being given credit they cannot afford.

• Example – The FCA’s our rules on persistent debt apply to customers who, over a period of 18 months or more, have paid more in interest, fees and charges than they have repaid of the principal balance on their card. The FCA expects firms to engage with customers in persistent debt to discuss options available to them.

3. Consumer understanding

The FCA has reminded firms of the importance of enabling customers to understand their products and services, including taking into account characteristics of vulnerability.

• Examples: The FCA has highlighted this is especially important in the following circumstances (i) experiencing or anticipating repayment difficulties; (ii) coming towards the end of an incentivized rate (e.g., a 0% introductory APR Offer); and (iii) repeat borrowing, or pursuing borrowing for consolidation purposes

4. Consumer support

The FCA has noted the heightened importance of proper implementation of the Duty in light of the current economic state and pointed to the higher number of s.75 claims and complaints which firms saw in relation to Covid-19 and the changing economic environment.

One of the FCA’s key priorities is to ensure that customers in financial difficulty receive fair and appropriate support. Whilst the FCA’s policy work on the Duty pre-dates the rising cost of living, the FCA considers that the Duty provides further opportunity for the sector to build public trust and points to their Dear CEO letter on the cost of living.

Finally, the FCA specifically pointed to firms needing to ensure that the support is provided through different channels depending on the need of customers.