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Mainstream consumer credit lenders: FCA Dear Board of Directors letter on supervisory strategy
The UK Financial Conduct Authority (FCA) has published a Dear Board of Directors letter sent to firms in the FCA's mainstream consumer credit lenders (MCCLs) portfolio, which is made up of firms providing regulated unsecured overdrafts, loans or credit cards. In the letter, the FCA sets out its views of the risks MCCLs may pose to consumers or markets and outlines its expectations of MCCLs.
The FCA will use its supervisory tools to test and, where necessary, mitigate potential areas of harm. The FCA advises that it will act where it finds poor customer outcomes from a failure to follow its rules.
Rent-to-own price cap: FCA evaluation paper
The FCA has published an evaluation paper, EP20/1, on its price cap on rent-to-own (RTO) products. The FCA welcomes comments on the paper. The FCA carried out the evaluation to test the effectiveness of the price cap, which came into force in April 2019. It evaluated two aspects:
- the effect of the price cap's benchmarking requirements on product prices. The FCA expected the benchmarking requirement to reduce the gap between RTO base prices and those of products sold by other retailers; and
- the effectiveness of the rules preventing revenue recovery through insurance, arrears and other charges.
The FCA's evaluation results estimate that the price cap's benchmarking requirements have brought RTO prices much closer to the high-street average, contributing to lower costs of financing for consumers. It has found no evidence to suggest that RTO firms raised the prices of add-ons and connected goods or services to recoup revenue lost because of the price cap.
As a result of the COVID-19 pandemic, the FCA was not able to carry out a full cost benefit analysis. This means it was not able to assess whether the price cap achieved all of the costs and benefits estimated at the time of the intervention. It notes that this may limit the wider applicability of the lessons learned from the evaluation. However, the FCA believes that some lessons can be drawn if it were to consider introducing price caps in other markets in the future.
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Authored by Yvonne Clapham
