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FCA warns consumer credit firms over staff incentive schemes

Too many consumer credit firms have high-risk elements in incentive schemes and haven’t spotted the risks they pose to customers, according to a report from the Financial Conduct Authority (FCA).

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In a review on staff incentives, remuneration and performance management in consumer credit, the FCA is consulting on measures to address the risks that can arise from the way consumer credit firms pay or incentivise their staff.

 

After reviewing a sample of 98 consumer credit firms, the FCA found that a significant proportion of firms had:

  • High risk financial incentives and/or performance management practices likely to encourage high-pressure sales or collections;
  • Inadequate or ineffective controls, and/or;
  • A lack of appreciation of the risks their incentives posed and the controls needed to address them.

The report states: "Too many of the firms in our sample had high-risk elements in their incentive schemes and had either not recognised the risks these posed to customers, or had not taken sufficient steps to manage those risks.”

 

The FCA also found that many firms, where consumer credit activities were ancillary to their main business (such as selling retail goods), as well as a number of lenders, had

not properly assessed the risks associated with their consumer credit activities, or the impact that staff incentives could have on those risks.

 

Jonathan Davidson, executive director of supervision, retail and authorisations, said: “The way firms pay and manage the performance of their staff is a key driver of culture and customer outcomes, and a continuing priority for the FCA.

 

“We expect firms to understand the effects their staff incentives might be having.”

 

The 98 firms visited covered a broad range of sub-sectors including:

  • High-cost short-term credit/Guarantor lending
  • Home collected credit
  • Catalogue/Internet shopping firms
  • Store/Credit card providers
  • Hire purchase/Conditional sale
  • Debt collectors
  • Credit brokers

More to follow.

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