The Financial Conduct Authority (FCA) has written to the heads of payday lending firms urging them to consider “affordability risk” before granting loans to financially vulnerable borrowers.

In the letters, the authority warned that lenders should “take prompt action” to ensure they maintain compliance with the regulatory standards that require them to assess borrowers’ “creditworthiness”.

The FCA stated that a lender “must take reasonable steps to establish or estimate the customer’s income, unless it can demonstrate that it is obvious in the circumstances that the customer is able to repay in an affordable manner”.

The warning from the regulator comes following the collapse of payday lender Wonga, which went into administration at the end of August after facing a clampdown from the regulator over its unfair debt-collection practices.

Payday lenders now face strict rules and a limit on the charges they can levy, causing the sector size to drop sharply since 2013.

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