Attention all Credit Firms

Dear CEO’s : Attention all Credit Firms

In May this year, the FCA issued one of the latest in its line of Dear CEO Letters aimed towards Consumer Credit Firms. In this letter Credit Brokers and Firms providing High-Cost Credit were asked to consider how they communicate with consumers. For those new to Dear CEO letters; as part of the FCA’s supervision of firms by Portfolio, these letters are a key communication strategy to address specific issues as they arise and request regulatory change within sectors.

Why was the letter sent?

In summary this letter is a reminder to  firms to consider all of chapter 3 of the Consumer Credit Sourcebook (CONC) in their approval of financial promotions as well as the wider economic challenges facing consumers. The cost-of-living crisis is rapidly evolving, with many facing significant rises in costs through energy bills, interest rate rises, and fuel prices which ultimately drives increases in the cost of daily food and essentials.  In May, major energy supplier E.on,  warned that 40% of households may find themselves in fuel poverty by October this year and it is anticipated that more people will take on short term borrowing in an attempt to alleviate their payment difficulties. These consumers are in a potentially vulnerable situation and require firms to act responsibly in order to ensure good outcomes are sought.

Focus

Whilst this letter focuses on protecting the demographic of borrowers who use high-cost borrowing products as a result of falling outside of mainstream prime lending (i.e. typically products with a Representative APR above 40%), firms should also note the importance of communicating with consumers and how this should be more widely accepted by all.. The letteris also a very clear signal of the imminent Consumer Duty already being part of the FCA approach to supervision.  Firms must communicate with their customers in a clear, fair, and not misleading way and the letter calls out a number of practices that they have seen in recent months which DO NOT meet the required standards set out within CONC.

Examples of practices that DO NOT meet CONC standards:

• Use of terms such as ” No Credit Check”, “Pre-approved Loans”, of “Loan Guaranteed”

• Failing to include risk warnings where required

• Failing to include a Representative APR where the need is triggered by invitation to apply for credit

• Inadequate information in Social Media advertising due to limited space

• Lack of disclosure in respect of status as a “credit broker not a lender”

Instead, the FCA requires firms to:

• Review their existing suite of financial promotions,

• Review their existing process to ensure that the issues raised within this letter are addressed,

• Ensure the firm’s board are aware of the letter and able to demonstrate what they have done in order to address the concerns raised

We have a number of experienced Consultants in our team who have been involved with financial promotion sign-off when working in authorised firms. We are able to offer our professional opinions and training in order to assist authorised firms to manage their approval process. If you are looking for support with your financial promotions, contact us today to speak with one of our experts.