The FCA has written to payday lenders and urged them to review their lending activity to see if their creditworthiness assessments are compliant.
In a letter addressed to chief executives, it sets out how the watchdog expects payday lenders to handle issues linked to the increase of complaints about unaffordable lending.
If deficiencies are found the FCA says firms should take action to ensure on-going lending activity is compliant and consider whether proactive redress may be required.
It also wants payday lenders to inform the regulator if they are unable now or in the future to meet their financial commitments because of any remediation costs.
The letter notes the Financial Ombudsman Service has recently published four examples of determinations of individual complaints about payday loans to illustrate its approach to the issues raised in those complaints.
If these are relevant the FCA says firms should take these examples of determinations into account as part of establishing their own effective procedures for handling complaints.
FCA director of supervision for retail and authorisations Jonathan Davidson says: “Firms will, though, need to review their policies and procedures, and how these have been implemented, to ensure that they are compliant, and can evidence this.
“They should also keep their policies and procedures under review to monitor compliance on an ongoing basis.”
The issue of payday lenders resurfaced in August when Wonga had put itself into administration after talks with the regulator failed to save the firm from the brink of collapse.