High cost lenders need to tighten their lending criteria as cash-strapped Brits turn to debt to cope with the rising cost of living, the financial watchdog has warned.
In a letter to 700 high cost lenders, the Financial Conduct Authority said it was “particularly important” that firms “mitigate the risk of poor consumer outcomes” and provide support to vulnerable customers.
“Financial pressure is building for consumers, with increasing living costs reducing disposable income,” Roma Pearson Director, Consumer Finance Supervision, wrote in the letter to lending chiefs.
“As such, it is important that firms take action now in accordance with our Principles, Rules and Guidance to mitigate the risk of harm to consumers.,”
Pearson outlined a rise in dangerous practices including so-called ‘sludge’ practices, where lenders use diversionary information to obscure real borrowing information, as well as lacklustre credit and affordability checks.
The warning to lenders comes as the FCA prepares to introduce its new consumer duty next year which will require regulated firms to work to actively deliver good outcomes for retail customers.
“High-cost firms will need to consider in their implementation of the Consumer Duty and setting or re-setting their strategy and business objectives, how their business is delivering the outcomes that the Consumer Duty supports.