These are both exciting and challenging times for the credit lending sector, currently a key area of focus for the Financial Conduct Authority (FCA).
Our team is currently working with a number of innovative new firms who are entering the market to service a range of sectors including:
- Short-term lending
- Salary advances
- Invoice financing
- Asset-backed lending.
Credit lenders operate under several different licences including:
- Peer-to-peer (P2P) lending
- Credit lending
- High-cost short-term credit lending (HCSTC).
While the UK credit market has been through a number of changes over the past few years, its biggest opportunity to date, and also its biggest challenge, has stemmed from the impact of Covid-19. One likely outcome of the pandemic is an almost unprecedented increase in borrowing by both consumers and businesses, particularly once government support schemes like furlough come to an end. It is vital that firms ensure they consider the vulnerabilities this will create within their credit and debt management policies and procedures – and within their wider policies, procedures and governance structures.
Adopting, and being able to evidence, a top-down culture of treating customers fairly will be fundamentally important in the aftermath of the coronavirus pandemic.
The FCA is also concerned with the quality of credit lending firms’ underwriting policies – and their ability to manage debt appropriately following drawdown. If you rely on an algorithm to some extent to help you do this, it’s essential you have appropriate systems, controls and governance in place around its operation. Our experts can apply their extensive credit knowledge to identify any gaps or potential areas of regulatory concern.
A particular area of focus for the FCA has been the high-cost short-term credit (HCSTC) market, also known as payday lending. A price cap introduced in 2015 has been followed by a number of reviews looking at how the market works and how it interacts with customers. Here too, we can provide practical guidance to help you ensure your firm meets the FCA’s requirements in full.