Financial Conduct Authority issues warning to high cost lending firms
The City watchdog has warned that high-cost lending firms must take action to protect customers from risk.
The Financial Conduct Authority (FCA) said companies that offer credit to consumers that may be rejected by mainstream banks must be aware of customers that display patterns of relending, which could be a symptom of unsustainable borrowing patterns.
Read more: City watchdog confirms rent-to-own price cap
Firms should also remedy insufficient affordability checks which could allow customers to take out loans they are unable to afford, the watchdog said in a letter to the chief executives of high cost lending businesses.
The FCA said poor workplace culture such as high-risk financial incentives, performance management practices and ineffective controls can lead to negative outcomes for customers.
“While not all of the findings of our letter may apply to your firm, we have seen a number of specific causes of harm across the firms in this portfolio,” the FCA said.
“We therefore encourage you to read and reflect on the entire letter. If we have contact with your firm in the future, we will expect you to be able to explain what you did in response to this letter.”
Read more: City watchdog cracks down on rent-to-own sector
The move comes after the FCA announced the introduction of a rent-to-own price cap next month, which will limit the amount of interest customers can be charged.
Some rent-to-own consumers were found to have paid more than four times the retail amount for items such as televisions and white goods.