New City Agenda: Response to FCA consultation on temporary financial relief for customers impacted by the coronavirus
6th April 2020
In response to the FCA’s consultation on supporting users of certain consumer credit products we are writing to request an immediate expansion of FSCS coverage to high-cost credit, including rent-to-own, guarantor loans, catalogue credit and Buy-Now-Pay-Later and further protections for customers of these firms. The impact of the Coronavirus will lead to more providers of high-cost credit in these markets falling into administration. Indeed, it will accelerate a trend which was already in place of exposing business models which relied on poor assessments of affordability, high interest rates and repeat lending. Without urgent changes, more consumers, including many vulnerable consumers will suffer further losses. We believe that the FCA should:
- Expand the coverage of the FSCS to consumer credit, including high-cost credit, rent-to-own, guarantor loans, catalogue credit and Buy-Now-Pay-Later firms
- Enable customers of all of these firms including guarantors to benefit from a 3-month payment holiday
- Ensure that firms communicate the availability of payment holidays clearly on their websites and in other communications
- Restrict the level of interest which can be charged during this payment holiday by setting a cap in the guidance
- Prohibit the recording of payment holidays as defaults and damaging consumers credit files
- Introduce protections for customers of firms in administration, preventing them from being subject to aggressive collections activity
- Ensure that all consumers who have suffered from misconduct receive redress
In 2017, the FCA concluded that most consumer credit activities (including high-cost short-term credit activity) should remain outside FSCS protection. It concluded that consumer credit activities are unlikely to give rises to financial losses to consumers and that losses to consumers had reduced significantly since the FCA took over regulation. We believe that in the light of recent events these conclusions should be subject to review.
After Wonga collapsed, consumers had claims of £460 million accepted by the administrator but received just 4.3p in the pound – losing out on around £440 million. Many of those customers will have been vulnerable customers for whom any loss is significant. At least in those cases the vast majority of the loans had already been paid off or were written off by the administrators. For the forthcoming and current administrations of lenders it is likely that these will be for longer-term products. This means that thousands of consumers will be trapped into making payments for loans which were always unaffordable and will be unable to get full redress.
We welcome recent FCA action to protect customers in the high-cost credit market, but it is important that the regulator remains proactive to protect customers of these firms in the current crisis. Customers of these firms must be covered by the temporary measures enabling consumers to access support and payment holidays. Interest payments for these products are very high and restrictions must be introduced on the level of interest charged during any payment holiday. Customers must also be protected during any administration process, including by the FSCS and all those who have been given unaffordable loans must receive redress.
If the FCA does not believe it currently has the powers necessary to protect customers of these firms during administration, to be able to clawback any bonuses from senior executives or to ensure that those who have profited from the operation of these firms are able to make an appropriate contribution to any redress then it should request additional powers from the Government.