FCA issues warning to CEOs of nearly 28,000 consumer credit companies in light of cost-of-living crisis – Consumer Credit


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On May 6, 2022, the Financial Conduct Authority (FCA) issued a letter to almost 28,000 companies that provide credit intermediation services or high-cost loan products. Pointing to the fact that millions are facing the biggest cost-of-living crisis in more than a decade, the FCA unambiguously reminded consumer credit companies that they have a responsibility not to exploit these circumstances.

The FCA highlighted the reality that it expects to see increased demand for credit, while rightly warning that it will keep the sector under close scrutiny to avoid unsustainable and unaffordable lending.

You clearly expect licensed businesses to ensure that financial promotions are clear, fair, and not misleading, as well as comply with the rules set out in your consumer credit reference book (CONC 3). Drawing attention to unacceptable practices, the FCA noted that it has identified promotions:

  • using terminology such as ‘no credit check loans’, ‘guaranteed loan’, ‘pre-approved’ or ‘no credit check’ which may be true for credit brokers but could falsely mislead consumers into believing that the lender will not verify the credit status at all;

  • offer brokerage services or direct loans for high-cost short-term credit without the required risk warning (“Warning: late payment can cause you serious money problems. For help, visit moneyhelper.org.uk”);

  • do not include the representative APR; Y

  • by credit brokers, without declaring that they are brokers rather than lenders,

all of which may break the CONC 3 rules.

While the FCA recognized that some advertising media may appear to create challenges in meeting FCA requirements, the FCA considered that its rules were generally media-neutral and could be met regardless of character limitations.

In addition, the FCA reminded companies that they must also comply with the CAP Code administered by the Advertising Standards Authority (ASA). In addition, the FCA cited the ASA’s advice on short-term and payday loans, which clearly states the need for socially responsible marketing. The ASA’s advice also clarifies that ASA’s ad evaluations are likely to consider an undue emphasis on speed, ease of access, targeting vulnerable groups, and whether an ad may trivialize obtaining a loan. Each assessment can be based on its facts, but this advice provides clear guidance that companies should consider to avoid violating the CAP Code.

Despite the list issues it had identified, the FCA was clear that this list should not be considered exhaustive. The FCA suggested that companies should review their financial promotions to ensure they comply with CONC 3, review the systems, processes and controls for financial promotions to ensure they are sufficient to comply with CONC 3, and bring the letter to the attention of your Board.

The FCA will proactively monitor the market for compliance and expects companies to put their clients’ interests at the heart of their business, including when drafting their financial promotions.

Companies should take this letter both as an illustrative guide to some key areas on the FCA’s radar and as an unequivocal warning that, in light of the current economic circumstances, action will be taken against companies that do not comply with its rules.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought according to your specific circumstances.

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