Avyse Partners’ Post

For those of us active in the #consumercredit sector or advising firms in it, many of the topics discussed in the FCA's recent portfolio letter were not surprising. The letter continues the theme of the regulator's focus on: 1. Affordability - so it is a good time to review your #affordability processes and to note the FCA's focus on re-lending. 2. #vulnerablecustomers - an industry-wide focus at the moment for the #fca but in particular for regulated consumer lending firms, this includes signposting to other forms of support where lending is declined. 3. Fair value - with the #consumerduty coming up to its first birthday, the FCA will be keen to ensure it can demonstrate the impact it has had. We have highlighted the importance of a robust #fairvalue assessment within the implementation of the Consumer Duty to many of our clients. 4. Forbearance - the FCA's work on borrowers in financial difficulty and replacing of the Tailored Support Guidance continues. It is important firms have the right processes in place to provide the right support to borrowers who are struggling. 5. Complaints and redress - dealing with complaints quickly and effectively, and conducting root cause analysis should be a key focus. 6. Governance - it was interesting to see the FCA highlighting a concern around governance, senior manager oversight and oversight of outsourcing arrangements. This is a good reminder for firms to review what they currently have in place and how it can be improved. In practice, this reflects a lot of the work we are seeing firms completing in the #consumerlending sector, but with so many different pressures on firms currently, it is a lot to be getting on with! #financialregulation #financialservices #consumerfinance Adam Edwards Daniel Seely

Today the Financial Conduct Authority published a Dear CEO letter on consumer lending. Key points included: Ineffective management of declined credit can increase the risk of consumers going to illegal money lenders as they may not be aware of alternative options. Firms should consider ways they can support declined consumers. For example, signposting to a third party that provides reliable and relevant information. Instances of good practice include firms who have integrated a 'benefits calculator' link on their websites, to assist consumers in securing the financial support to which they are entitled. Read the full letter here: https://lnkd.in/ewiRvQTX #ConsumerDuty #CDFIs

The FCA has today published Dear CEO letter setting out its strategy for Consumer Lending. The FCA's priorities are: a) access to affordable credit b) firms must lend responsibly and sustainably c) firms must ensure that the price paid for a product or service is reasonable compared to the overall benefits d) firms must support consumers in financial difficulties e) firms must handle complaint and redress requirements effectively f) firms must have appropriate systems and controls to mitigate risk of financial crime and in this section they highlight that in current market conditions illegal money lending and domestic financial abuse are likely to grow g) firms must have robust governance practices, ensuring effective oversight and risk management There is a lot to unpack in this letter, but the key message from the FCA is that firms will tested on how they meeting FCA expectations. If you would like to talk about what the letter may mean for your firm, then please feel to reach to AG Financial Services Regulation Risk and Compliance team via myself or Sarah Herbert or Toby Davis https://lnkd.in/eqtRtbiR

It’s great to see leadership like this from the Financial Conduct Authority with their strategy for Consumer Lending. https://lnkd.in/ewiRvQTX A thriving and innovative consumer credit market can help provide vital safety nets for the millions of people in financially vulnerable circumstances in the UK. Where appropriate, fair and affordable credit can help people smooth their incomes, manage life events and build their financial resilience. Yet there’s a big gap in the provision of this type of credit in the market. We’re delighted to see the FCA build on their Consumer Duty and support a sustainable and effective credit market through three key focus areas: •       Reducing and preventing serious harm •       Setting and testing higher standards •       Promoting competition and positive change We hope this focus and support enables lenders to help create a market that provides everyone with the right products and services, whenever they need them. And we look forward to continuing to work with the FCA, policymakers, trade bodies and lenders to help make this happen. #FinancialInclusion #AffordableCredit  

The Financial Conduct Authority (FCA) published a letter for the Consumer Lending Market last week, setting the strategy that Roma Pearson, the FCA Director of Consumer Finance has set herself for the next 2 years. Philip Salter, our Senior Adviser summarised in a blog post what consumer lending firms should know about it. 👇 Read the key points below and the full blog post on our website. This letter gives a strong sense of the FCA’s priorities. They are broad and challenging in the current financial environment. Firms should ensure that they have a strong handle on the issues highlighted and they should be reflected in firms’ compliance monitoring and internal audit planning and commissioning of external reviews. ➡ The letter combines, for the first time, the three portfolios: High Cost Lending, Mainstream Consumer Credit Lending and Credit Unions. ➡ This is a vast spectrum of firms but as the letter makes clear the FCA see sufficient similarity in products, consumer base and potential harms posed to set out a market strategy. ➡ The context is obviously the cost-of-living crisis for the consumers in this market, many of whom are already struggling with debt. There is little praise for how the market has been operating and many challenges for how firms need to step up. ➡ The focus is firmly on ◾ lending responsibly and sustainably,       ◾ price and fair value,       ◾ supporting consumers in financial difficulty,       ◾ more effective complaint handling including to identify learnings,       ◾ controls to mitigate the risks of crime, and       ◾ the need for robust governance and effective risk management. ➡ The strategy remains to ensure firms lend responsibly and deal fairly with those in financial difficulty and this is now underpinned by the Consumer Duty with particular emphasis on fair value. ➡ The letter also talks about the really tricky issue of access to credit, emphasising that unaffordable credit is harmful so for some consumers more credit is the wrong answer, as well as asking firms to think about how they could support declined customers there is clearly a desire to transform how this market works for those excluded from it. Read the full blog post: https://lnkd.in/gkPu6bsS #sicsicadvisoryinsights

🚀 Key Takeaways from the FCA's Strategy for Consumer Lending 📈 #FinancialServices #ConsumerLending The FCA emphasizes the importance of the Consumer Lending market to the UK economy and highlights three critical sectors: High-Cost Lending, Mainstream Consumer Credit Lending, and Credit Unions. The letter outlines a vision for a thriving, innovative market where credit is accessible and affordable, aligning with consumer needs and financial health. 🔍 **Market Insights and Changes:** - A significant contraction in high-cost lending since 2019, with a shift towards credit unions and alternative lending solutions. - Growth in pawnbroker use and credit card borrowing post-pandemic. - An overall increase in consumer credit demand, with total lending growing by £6.5 billion from 2021 to 2023 amidst rising interest rates and inflation pressures. 🎯 FCA's Priorities: 1. Access to Affordable Credit: Encouraging a market that supports financial wellbeing, including innovative solutions for declined consumers to prevent reliance on illegal money lenders. 2. Responsible Lending: Ensuring firms conduct sound affordability assessments to prevent financial hardship. 3. Fair Pricing: Products and services must offer value, reflecting fair pricing standards especially in a high-interest environment. 4. Support for Consumers in Financial Difficulty: Enhancing forbearance options and support for consumers facing financial pressures. 5. Effective Complaints and Redress Management: Improving complaint handling processes and ensuring efficient redress mechanisms. 6. Mitigating Financial Crime Risks: Addressing illegal money lending and domestic financial abuse through better detection and support. 7. Robust Governance:Firms are expected to maintain effective oversight and risk management, with a focus on strong governance and consumer outcomes. 📌 **Action for Firms:** The FCA calls on firms to align with these priorities, innovate responsibly, and ensure the delivery of good consumer outcomes. Regular monitoring, data-driven insights, and proactive governance are crucial to meeting regulatory expectations and supporting consumer welfare. #Innovation #ConsumerProtection #FinancialWellbeing

What’s the key to becoming even more confident in your SME lending decisions? Getting granular 🔎 By digging into the details of income and expenditure, then categorising that data appropriately, you can better assess the commercial affordability of the companies you work with. To learn more and see how our categorisation engine could help, our Market Engagement Director, John Griffiths explains all: https://lnkd.in/eDhT8C94 #SMEAffordability #CommercialAffordability #CreditRiskEngine

This brings me to development #2:  (2) Consumer Reports and Consumer Federation of America penned a thoughtful letter to the CFPB on the need for greater clarity in the use of AI/ML in credit decisioning and Less Discriminatory Alternatives (LDA) searches. In this letter, they highlight the benefits more advanced modeling approaches can bring in effectively and efficiently finding comparably performing and fairer models. Importantly, they also discuss the risks of reinforcing biases that come with these more advanced approaches. The key here is ensuring that the machine learning approaches used to make high-risk, high-value predictions and decisions are understandable by a range of stakeholders, not just a select few (if that). This is where interpretability offers our industry great promise and why we at Stratyfy are so dedicated to models and decisions that leverage the benefits of machine learning without the black-box risks⬛. A few quotes to highlight from this letter:   💡“While [AI and ML] models offer important potential benefits, they can reinforce and make worse existing and historical biases that prevent communities of color and low-income consumers from accessing affordable credit.” 💡“...too many credit applicants will be hurt if the approach is to wait to see what trouble emerges from black boxes, compared to one where clear expectations are established for how and when to search for fairer models.” Kudos to Jennifer Chien and Adam Rust for their continued leadership in this important area. While we’re seeing great progress being made in the area of fair lending and the adoption of new technologies, there is still more that can be done. And the exciting thing is that it can now be done both more effectively and more efficiently than we have ever seen before. We are committed to helping lenders see that the fairer choice is also the more profitable one for their businesses. If you want to learn how we make this happen, let's talk! 

On 20 March 2024, the #FCA published a portfolio letter to three portfolios in the consumer lending market: high-cost lending, ‘mainstream’ consumer credit lending and credit unions. There’s a lot in the letter for such firms to consider. For a speed read, and a link to the letter, please see: https://lnkd.in/efTER-HJ #consumercredit #portfolioletter #consumercredit

Getting responsible lending right and establishing affordability is critical to demonstrating that you are a responsible lender. Read our latest thoughts in the blog below and reach out to any member of our Risk and Regulatory advisory team to discuss how we can support #responsiblelending #affordability #kpmguk #customeroutcomes