FCA has written a “portfolio strategy letter” to firms that provide high-cost lending products such as guarantor loans, high cost short-term credit and unsecured loans for sub-prime customers, home-collected credit, income smoothing products, logbook loans, pawnbroking and RTO. Its strategy also applies to community development finance institutions.
FCA notes there are significant variations in size and business models and products within this portfolio, but that the customer base shares key characteristics, including that they are likely to be vulnerable. It therefore warns firms of the significant risks caused by poor affordability checks and poor culture (especially if the culture involves high-risk incentives or poor performance management). FCA has noted several key causes of harm in the sector and now requires all firms to consider its letter and be prepared to explain to it what they have done in response to it.
It will be prioritising its work to address:
- buying and selling loan portfolios
- changes to the business model
- compliance with new rules and guidance and
- for guarantor lenders, payments made by guarantors.