More details have emerged of the Financial Conduct Authority’s imminent unsecured credit review, which will explore how firms are undertaking credit worthiness assessments.
It has already been announced that the UK watchdog’s probe, led by outgoing interim chief executive Christopher Woolard, will focus on the growth of unregulated ‘buy now, pay later’ credit schemes and employee salary advance schemes.
But details from the FCA’s Perimeter Report 2019/20, published in September, show precise elements of its scope.
The regulator states in the report that it is concerned that a “lack of creditworthiness checks” in high cost ‘buy now, pay later’ schemes could result in unaffordable borrowing, put consumers “at risk of default” and increase levels of indebtedness.
The FCA has seen a growth in these products, which are mostly outside of its regulatory perimeter, due to reductions in available funding and firm failures, and said they “could pose harm to those who are financially stretched”.
The regulator added that while employee salary advance schemes can be convenient for people when used in the right way, it is concerned these are promoted as an alternative to high cost credit and yet have a “broadly similar economic effect”.
The annual report states that they can incur escalating charges, put people at risk of dependency and might not take into account an individual’s underlying financial problems.
The review will consider future regulation of the unsecured credit market, taking into account the impact of the Covid-19 pandemic on employment security and credit scores, changes in business models and new developments in unsecured lending.
The watchdog also warned it will monitor the development of other forms of credit-like product structures to avoid credit rules.
The review will make recommendations to the FCA board in early 2021.