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Buy Now Pay Later – Portfolio Letter issued by FCA for Mainstream Consumer Credit Lenders (MCCLs)

28 July 2022

Continuing our series on regulatory changes surrounding the Consumer Lending sector and Buy Now Pay Later Products, we look at the FCA's recent 'Dear CEO' letter addressing MCCLs, their supervisory strategy and what this means for firms.

On 27 June 2022, the FCA issued a 'Dear CEO' portfolio letter as a follow up to their December 2020 review setting out their supervisory strategy for mainstream consumer credit lenders (MCCLs). This letter reiterates the FCA's concern for consumers in light of the rise in demand for credit following the pandemic and the cost of living crisis.

The FCA outline potential key risks that MCCLs pose and highlight four areas of focus for firms to mitigate such risks.

  1. Treatment of borrowers who fall into financial difficulty.

The FCA reiterate, as a key priority, their expectation for firms to ensure that customers in financial difficulty receive fair and appropriate support.

  1. Inadequate assessment of affordability.

The FCA emphasise that firms should not seek to increase business by lowering the stringency of affordability checks. Highlighting that firms should ensure that consumers do not become over-indebted by being given credit they cannot afford and noting the specific regulatory requirements for firms to consider this in their affordability assessment strategies. This includes:

  • the application of reasonable and proportionate checks,
  • assessments of customer income;
  • assessing non-discretionary expenditure,
  • performing the affordability calculation; and
  • management information (MI).

The FCA routinely monitor and keep an eye on the market for signs of inadequate affordability assessments.

  1. Persistent debt strategies.

In 2018, the FCA introduced measures to help customers in persistent credit card debt. Persistent debt remains a priority risk for the FCA who will continue to review the effectiveness of these remedies.

  1. Section 75 Consumer Credit Act 1974 (CCA).

The FCA believe that firms are not dealing with their section 75 responsibilities appropriately and have requested data to review how these claims or complaints have been handled. The FCA mention that they will act where it has concerns.

What this means for you

Firms are expected to ensure that their business activities maintain regulatory expectations by treating consumers equitably, with clear communications issued to consumers and ensuring that disputes and complaints are resolved fairly.

At DWF, our blended team of experts can help you assess how this letter impacts your firm and assist you to identify and embed the changes required for your business to achieve compliance. To discuss specific concerns, please do not hesitate to contact our team below: 

Andrew Jacobs – Partner
T +44 20 7645 4459
M +44 7902 701867
E Andrew.Jacobs@dwf.law

Sharon Ugboaja – Consultant
T  +44 20 7645 4101 
M  +44 77 8378 3060

Further Reading