As financial pressures mount for many UK households, the Financial Conduct Authority (FCA) is intensifying its oversight of banks and credit agencies to ensure compliance with Consumer Duty rules. The latest data from Step Change reveals that one in four adults have relied on credit to cover essential costs like food and household bills, highlighting the urgency of robust lender practices during the ongoing cost of living crisis.
Increasing Scrutiny on Affordability Checks
In response to the growing reliance on credit, RSM UK is reminding financial institutions of their responsibilities under Consumer Duty guidelines. The FCA mandates that firms conduct thorough affordability checks to confirm that consumers can manage the financial products they are using without undue strain. Lenders must also ensure that customers fully understand the terms of their agreements, including clear explanations of repayment conditions and interest rates.
Consequences of Non-Compliance
The stakes for failing to adhere to these regulations are high. Non-compliant firms risk facing severe penalties such as regulatory fines, the necessity for costly customer redress programs, and even the possibility of operational closure. These measures underscore the FCA’s commitment to protecting consumers, particularly those who are financially vulnerable.
Joint Regulatory Efforts to Ensure Fair Debt Collection
Further illustrating its commitment to consumer protection, the FCA has joined forces with other regulatory bodies including Ofgem, Ofwat, and Ofcom. This coalition aims to oversee that debt collection practices across sectors are conducted fairly, ensuring that customers do not face excessive contact and that firms provide guidance towards free sources of advice for those struggling with repayments.
Rising Debt and High Interest Rates
Amid these regulatory tightening, recent figures from The Money Charity highlight that UK personal debt has reached a staggering £1,841.2 billion as of the end of February, marking an increase of £9.5 million from the previous year. Concurrently, data from Which? shows that the average APR on credit cards climbed to 34.7% in February, up significantly from 30.6% a year earlier. With the Bank of England base rate holding at 5.25%, the high interest rates on consumer borrowing, including credit cards and loans, continue to exacerbate the debt challenges faced by many.
RSM UK’s Perspective on the Regulatory Landscape
Zoe Morton, Associate Director at RSM UK, comments on the evolving regulatory focus: “It’s clear that in the current cost of living crisis, with high levels of consumer borrowing, the regulator is already paying close attention to firms’ treatment of customers who may be struggling. Under the Consumer Duty, the FCA has set higher expectations of banks and other creditors, making it clear the onus is on them to ensure consumers fully understand their products and services, including the interest rate, and implications of falling behind on repayments.”
Morton anticipates that this increased scrutiny will lead to more routine checks and visits from the FCA, along with requests for evidence of compliance and potentially more enforcement actions. This could include financial redress for customers from creditors who fail to meet the stringent requirements of the Consumer Duty.
Conclusion
As the FCA reinforces its regulations and expectations, the financial services industry must adapt to ensure that they not only comply with these heightened standards but also genuinely support their customers through these challenging economic times. The focus on consumer understanding and the ability to manage debt is more crucial than ever, setting a precedent for responsible lending that prioritizes consumer welfare and long-term financial health.
