Last week we responded to the Financial Conduct Authority’s (FCA) call for input on change and innovation in unsecured credit, as part of the Woolard Review into how regulation can better support a healthy unsecured lending market.
We welcome this review and offer our support to the FCA and the financial services industry in changing the market to drive better customer outcomes for those in vulnerable circumstances.
Our response explores changes in the supply and demand for credit, particularly as a result of the coronavirus pandemic, highlighting that
- although overall borrowing has fallen, there has been an increase in demand for credit for everyday essentials from people in the most financially vulnerable circumstances
- millions of people are currently underserved by the unsecured credit market, which has seen the collapse of large payday and rent-to-own lenders
- the pandemic is creating significant challenges for lenders, particularly in the community finance sector which earlier this year saw falls in lending revenue and increased operational and forbearance costs
We set out what needs to change in the unsecured credit market to meet unserved demand and to support the financial wellbeing of people in vulnerable circumstances
- improving standards in the sub-prime lending market through better regulation and sharing of good practice
- enabling community finance organisations to scale and compete with commercial firms for customers
- incentivising and supporting mainstream banks and financial services providers to fill the market gaps left by high-cost providers exiting, or in current unmet demand
We also call for the FCA to further understand the impact on consumers of the growing popularity of unregulated Buy Now Pay Later arrangements and Employment Salary Advance Schemes. We suggest that these are brought into the FCA’s regulatory perimeter, in order to ensure consistent outcomes for consumers across all forms of credit.