FCA to probe into second charge and sub-prime

Ryan Bembridge

April 17, 2019

The Financial Conduct Authority is concerned that second charge and sub-prime lenders are profiting from customers who struggle to repay their loans.

In its Business Plan for 2019/2020, the FCA said it will identify lenders with these business models before looking into how customers are affected. It will then decide if and how it should take action.

The FCA said: “In recent years, we have introduced measures to help consumers in markets with a high incidence of poor value products, services or treatment of those in financial difficulty.

“We are concerned that the business models of some retail lending products, including some sub-prime credit and second charge mortgage products, are designed to benefit from consumers not repaying their debts.

“For example, firms may make profits from consumers who do not or cannot repay in full and on time.

“We will carry out work to identify these business models and the consequences for consumers and use our findings to identify what action we may need to take.”

Tim Wheeldon, chief operating officer at second charge distributor Fluent Money Group, seemed surprised by news.

He said: “We do not recognise the scenario which the regulator is concerned about. Certainly none of the lenders on our panel have anything to fear from such a review.

“I also think it is a shame to find the regulator seeming to lump sub-prime lending and second charge lending together when there is no direct correlation between them.

“However, overall I think that this can only have a positive outcome by reinforcing the integrity of second charge mortgages and their place in advisers’ options for customers wishing to raise capital.”

Elsewhere in its business plan the FCA reiterated its desire to make it easier for consumers to be able to switch mortgage products, as well as make informed choices about both products and intermediary services like mortgage brokers.

The FCA added: “Our work to make the mortgage market function better focuses particularly on making it easier for consumers and intermediaries to get the best deal. This is important if interest rates and pressures on household budgets increase.

“We also continue to monitor how the market is developing to meet borrowers’ changing needs, given the growth of the gig economy and older consumers borrowing into retirement.”

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