FCA reports concerns over credit firms’ repeat borrowing

The FCA has published new findings of a review into repeat borrowing by firms that offer high-cost credit.

The review, completed before the COVID-19 pandemic, highlighted concerns about poor practices by some firms, noting that nearly half of consumers regretted borrowing more money.

As firms begin to lend again, the regulator said its report sets out expectations on how they must treat consumers.

Levels of debt increased as consumers took additional credit from high-cost lenders, the findings showed, with consumers indicating they experienced financial difficulties as a result – including missing payments and prioritising repayment of debt over other expenses.

Nearly half of consumers who took part in research commissioned for the review said they regretted their decision to borrow more money, and for some products this grew to more than 60%. The FCA suggested high-cost credit customers are more likely to be vulnerable, have low financial resilience and poor credit histories.

FCA executive director of supervision, retail and authorisations, Jonathan Davidson, said: “We have significant concerns that repeat borrowing could be a strong indicator of levels of debt that are harmful to the customer.

“Before the pandemic we saw increasing numbers of complaints about high-cost lenders’ relending practices, which showed that firms had failed to adequately assess affordability, and they were not relending in a way that was sustainable for customers.

“We expect firms to review their relending practices in light of our findings as they start to lend again, and to make any necessary changes to improve customer outcomes. We will continue working with firms to raise standards, and we will continue to take action where we see harm.”

Commenting on the FCA’s findings, AJ Bell personal finance analyst, Laura Suter, added: “With debt levels set to spiral amid the end of the furlough scheme and a spike in unemployment, the FCA has warned that some high-cost lenders are acting irresponsibly by continuing to lend money to those already in debt who have no way out.

“Any crackdown on these practices would be good news for consumers at a time when many find themselves in spiralling debt. This is particularly the case as the COVID-19 measures introduced by the regulator to ease the burden of debt, such as payment holidays or reductions in interest rates, start to be unwound and people face hefty bills for their borrowing.

“But those in debt should be offered help, rather than just denied more credit. Anyone who is struggling to repay their debt or is continually borrowing should be offered debt advice, a plan to pay off their borrowing, pointed to cheaper forms of debt and support in solving the problem, rather than just denied lending by the debt company – as this will only push them into even more unscrupulous hands.”

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