The FCA has attacked payday lenders for failing to treat customers in arrears fairly following a 12-month thematic review of the sector.
The regulator says the review, which covered 60 per cent of the market, found “serious non-compliance and unfair practices” in every single short-term credit firm.
The FCA uncovered “unacceptable practices” from many lenders, including failure to recognise customers in financial difficulty, failure to point people to free debt advice and companies offering inflexible repayment options.
Firms are required to give customers “breathing space” from debt collection activity if they are working with a debt adviser to manage their debts.
But reviews of three firms revealed vulnerable customers continued to be pursued by collection agents despite a “backlog” of letters and documentation, including medical evidence and information from debt advisers about why they had failed to pay.
The catalogue of failures uncovered in the sector also included:
- repayment plans that were clearly unsustainable and subsequently failed,
- firms not dealing appropriately with issues when things went wrong, for example staff failing to investigate or acknowledge complaints and customers having to explain their situation multiple times as a result of poor record-keeping,
- firms engaging in misleading practices to seek payment from customers in arrears,
- systems failures resulting in incorrect balances, fees and charges erroneously added, and in some cases, duplicate payments being taken.
The regulator says investigations are ongoing at a number of firms and it is working to determine appropriate levels of redress for customers who have been treated poorly.
Despite all this, the FCA is “encouraged” at the steps taken by the industry in the past year to address poor practices, including changes to senior management, training staff to deal with struggling customers and improving monitoring, compliance and managing risk.
FCA director of supervision and authorisations Tracey McDermott says: “Our rules are designed to ensure loans are affordable; that customers who get into difficulty are treated fairly and that they are not pressurised into unaffordable and unsustainable repayment plans.
“This segment of the industry has, for too long, been in the spotlight for the wrong reasons. It is essential that the more customer-focused approach we have started to see is maintained and embedded as we go forward.
“The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market.”