The Financial Conduct Authority has sent a ‘dear CEO’ letter to payday loan providers urging them to improve their practices.
The letter was sent in the wake of complaints about a ‘chain’ of loans, where individuals take out one after another.
The regulator told firms to assess whether creditworthiness assessments are compliant. If not they should proactively reimburse customers – even if they haven’t complained.
It added that firms should have the money to cope with reimbursement costs, as well as fees to the likes of the Financial Ombudsman Service.
The letter was written by the FCA’s director of supervision Jonathan Davidson.
It said: “We expect firms to make appropriate provision for any remediation which may be required, including associated costs (for example, fees to the Ombudsman).
“If doing so calls into question your firm’s ability both now and in the future to meet its financial commitments as they fall due, you must notify the FCA immediately.
“We are also taking the opportunity to remind you of our requirements in respect of affordable lending. We expect the firm to review its current lending processes to ensure it is fully compliant with our rules.
“If the firm identifies that its processes do not comply, it should take appropriate steps to address this, which may include considering whether to cease lending until any contraventions are remedied.
“If the firm becomes aware or has information which reasonably suggests that there are significant breaches of our rules, it must inform the FCA immediately. The firm should explain what steps it plans to take to address the issue.”