FCA warns high-cost lenders on repeat loans
The Financial Conduct Authority has told high-cost lenders to review their repeat loans as vulnerable borrowers face mounting debts caused by the Covid-19 crisis.
The FCA said as firms restart lending after the coronvirus lockdown it wanted them to improve their behaviour towards hard-up borrowers.
An FCA survey, conducted before the pandemic, found firms stressing the ease of borrowing more and suggesting taking out loans for holidays using pictures of exotic holiday spots. Lenders also told borrowers that relending was common practice and normal behaviour, the FCA said.
Total levels of debt often increased for consumers who took extra credit from high-cost lenders and almost half of those who did so said they regretted it, the survey found. Borrowers missed payments, leading to anxiety and stress.
Jonathan Davidson, the FCA's executive director of supervision, retail and authorisations, said: "Before the pandemic we saw increasing numbers of complaints about high-cost lenders’ relending practices. We expect firms to review their relending practices in light of our findings as they start to lend again, and to make any necessary changes to improve customer outcomes."
UK households are expected to amass £6bn of extra debt because of the Covid-19 crisis as millions of people fall behind on card payments and other bills, the StepChange charity has warned. Though households have repaid billions of pounds of unsecured debt during the crisis this has mainly affected relatively affluent borrowers.
Low-income borrowers could face further pressure as government support for jobs is withdrawn, raising the prospect of millions of people being put out of work during the deepest recession since world war two. Banks are also set to unwind measures to support customers such as payment holidays.
Laura Suter, a personal finance analyst at investment platform AJ Bell, said: “As a large chunk of the population has been forced into debt by the current Covid-19 crisis, the regulator is clearly worried about debt companies using misleading marketing and pushy tactics to keep customers in high-cost debt.
"Anyone who is struggling to repay their debt or is continually borrowing should be offered debt advice, a plan to pay off their borrowing, pointed to cheaper forms of debt and support in solving the problem, rather than just denied lending by the debt company."