Payday lenders have been told to consider whether they should be pro-actively offering customers compensation – even if they have not made a complaint.
The Financial Conduct Authority (FCA) has written a strongly-worded letter to chief executives of payday lenders, saying firms should assess their lending activity to determine whether creditworthiness assessments are compliant.
It follows an increase in complaints about unaffordable lending, such as complaints about borrowers taking out a “chain” of loans over an extended period.
The FCA said if systematic problems are identified, firms should consider proactively putting the situation right – which could include contacting customers who have not complained.
The letter says: “Where firms identify recurring or systemic problems in their provision of a financial service, which could include problems in relation to the carrying out of affordability assessments, the firms should ascertain the scope and severity of the consumer detriment that might have arisen, and consider whether it is fair and reasonable for the firm to proactively undertake a redress or remediation exercise, which may include contacting customers who have not complained.”
Firms should tell the regulator if they are unable to meet their financial commitments because of any remediation costs, the FCA said.
It follows the collapse of Wonga earlier this year, which was hit by a surge in people making compensation claims over historical loans.
The letter says firms should tell the FCA if making compensation provision calls into question their ability to meet their financial commitments.
It says: “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.”