Credit firms warned against exploiting borrowers
The regulator has warned credit firms not to exploit borrowers amid the cost-of-living crisis, as it expects demand to increase.
The regulator, the Financial Conduct Authority (FCA), has written to 28,000 credit firms warning them to stop using terms such as ‘no credit check loans’, ‘loan guaranteed’, ‘pre-approved’, or ‘no credit checks’.
It said these misleading adverts give borrowers the impression that they will automatically get a loan if they apply, or that they can get a loan without the lender carrying out affordability checks.
And given the cost-of-living crisis, it means many more people may need to turn to loans. The letter read: “Millions of people are facing the biggest cost-of-living crisis in more than a decade with bills expected to rise considerably.
“We can expect to see greater demand for credit, including short-term credit, particularly impacting consumers in vulnerable circumstances. We need to keep the sector under close review to ensure that demand does not result in unsustainable and often unaffordable lending.
“Firms have a responsibility to ensure they do not exploit the cost-of-living crisis to promote their services. Firms should focus on their customers’ needs, delivering the right information, at the right time, and in accordance with our rules.”
It comes as the FCA said it is concerned that borrowers could be led into believing a lender will make no checks on their credit status.
Two firms have recently agreed with the FCA that they would make changes to their financial promotions, including the removal of phrases like “no credit check loans”.
The FCA has also seen examples where some high-cost, short-term credit promotions failed to carry the risk warning relating to late payments causing serious money problems.
Meanwhile, some promotions failed to include the representative APR, and the FCA also took aim at some promotions by credit brokers which failed to state that they were brokers instead of lenders.
As such, the FCA suggested that the firms review their processes and systems for promotions to make sure they’re in line with its rules.
‘No excuse for adverts to make borrowing look easier or less risky’
Sheldon Mills, executive director of the FCA, wrote: “We expect firms to be putting their customers’ interests at the heart of their business, and this includes when they draft, publish and review financial promotions. It is especially important that firms consider the potential harm for consumers should they be mis-sold products via misleading, unfair or unclear promotions.”
Mills, added: “The rising cost of living means many more consumers may find themselves in difficulty. When people are looking for a loan, it’s vital that they have the full picture about what this might mean and the risks involved – particularly if they are already in a difficult financial situation.
“There is no excuse for adverts to make borrowing look easier or less risky than it is and they should be seeking to help customers through the cost-of-living crisis – not exploiting it in their marketing.”