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Dear CEO | Release Date: 20th March 2024

To read a shorter summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Long Summary

The Financial Conduct Authority (FCA) has issued a comprehensive strategy for Consumer Lending within the UK, focusing specifically on three main portfolios: High-Cost Lending, Mainstream Consumer Credit Lending, and Credit Unions. This letter to CEOs highlights the critical role of the Consumer Lending market in the national economy, offering essential services to millions, including those in vulnerable situations. The FCA outlines its commitment to fostering a vibrant, innovative market that ensures access to affordable credit, emphasising the necessity for firms to adopt responsible lending practices and support consumers facing financial difficulties.

Overview of the Consumer Lending Market

The Consumer Lending market is a vital component of the UK’s financial landscape, serving a wide range of consumers, including those who are financially vulnerable. This market has undergone significant changes, particularly in the areas of high-cost lending, where there has been a noticeable contraction, and in the growing reliance on pawnbrokers and credit card borrowing. The letter notes the increase in consumer borrowing, with total lending growing by £6.5 billion between June 2021 and June 2023, amidst rising interest rates, which impacts the affordability of credit.

Key Challenges and FCA’s Priorities

The FCA identifies several challenges within the Consumer Lending market, including:

Firms have been found lacking in their evaluation of borrowers’ ability to repay loans, risking consumer harm.

Some business models depend excessively on consumers borrowing repeatedly, which can lead to unsustainable debt.

 Products are sometimes structured to encourage continuous borrowing, leading to potential financial strain for consumers.

 Firms often fail to offer adequate forbearance options or support for those facing financial hardships.

 Ineffective handling of complaints and redress processes has been prevalent, exacerbating consumer issues.

Some firms have not fulfilled their obligations to compensate consumers when due.

In response to these challenges, the FCA has articulated its strategic objectives and specific areas of focus, including preventing harm, setting higher standards, and promoting positive change and competition within the market.

Access to Affordable Credit

The FCA stresses the importance of providing access to affordable credit, enabling consumers to manage short-term financial needs without falling into harmful debt cycles. It points out the adverse effects of inaccessible credit, such as the potential turn towards illegal money lending. The FCA applauds instances of good practice, such as credit unions providing links to benefits calculators on their websites, and encourages firms to consider how they can support declined consumers.

Lending Responsibly and Sustainably

Firms are urged to ensure that their lending practices are responsible, taking into account the vulnerability and financial resilience of borrowers. The letter references the FCA’s Financial Lives Survey, highlighting the significant number of adults displaying characteristics of vulnerability. The FCA calls for sound affordability and credit-worthiness assessments, and criticises “sludge practices” that create barriers for consumers seeking support.

Fair Pricing and Value

The FCA emphasises the importance of fair pricing, expecting firms to demonstrate how their products and services offer value to consumers. It addresses the issue of high-interest loans and the necessity for firms to justify the fairness of their pricing structures, especially in light of rising interest rates.

Supporting Consumers in Financial Difficulty

With the cost of living rising, the FCA acknowledges that more consumers may struggle with debt and require tailored support. The letter cites findings from multi-firm work on Borrowers in Financial Difficulty, urging firms to improve their support mechanisms for these consumers.

 Effective Complaints Handling and Redress

The FCA calls for improved complaints management and redress processes, noting that poor practices in these areas have led to significant financial strain on firms and consumers alike. Firms are encouraged to embrace changes that enhance their complaints handling capabilities.

Mitigating Risks of Financial Crime

The letter highlights the growing risks of illegal money lending and domestic financial abuse, urging firms to be vigilant and proactive in spotting signs of financial crime and supporting affected consumers.

Robust Governance and Risk Management

Firms are reminded of their obligation to maintain effective governance and oversight, with a specific focus on the Senior Managers and Certification Regime (SM&CR) and the importance of embedding good practices and fair outcomes for consumers within their corporate culture.

The Consumer Duty and Policy Changes

The introduction of the Consumer Duty is discussed, with the FCA expecting firms to have fully implemented and embedded this duty for open products and services, and to be preparing to apply it to closed books. The letter also outlines upcoming policy changes, including reforms to the Consumer Credit Act 1974 and the introduction of Product Sales Data returns for consumer credit agreements.

Takeaways and Actions for Affected Readers

Firms must conduct thorough affordability and creditworthiness assessments to support responsible borrowing.

 It is crucial for firms to offer adequate support and forbearance options for consumers in financial difficulty, recognising the increasing vulnerability and financial strain on many individuals.

 Companies should transparently demonstrate how their products offer fair value, ensuring prices are justified and not exploitative, especially in higher-risk lending.

 Firms are expected to enhance their complaints handling processes, ensuring effective management and redress, which will also contribute to preventing firm failures and building consumer trust.

 Vigilance against illegal money lending and financial abuse is paramount. Firms should educate their staff on spotting signs of financial crime and support victims appropriately.

 Robust governance structures and effective risk management practices are essential. Firms should ensure senior management engagement and accountability, particularly regarding the Consumer Duty.

 Firms must fully integrate the Consumer Duty into their operations, focusing on delivering good outcomes for consumers. This includes preparation for its application to closed products and services.

 Stay informed and adapt to upcoming regulatory changes, including those related to the Consumer Credit Act reform and the introduction of Product Sales Data returns.

 While innovation is encouraged, especially in providing access to affordable credit, it should not come at the expense of consumer protection. Firms should explore collaboration with government initiatives and leverage technology to enhance consumer experiences.

 Continuous monitoring of practices and outcomes is required to ensure compliance with FCA expectations. Firms should be ready to report on their adherence to the Consumer Duty and other regulatory requirements.

Keeping the register up to date is essential for transparency and ensures that consumers can contact firms efficiently.


The FCA’s letter serves as a comprehensive guide and warning to firms within the Consumer Lending market. It emphasises the authority’s focus on protecting vulnerable consumers, promoting fair and responsible lending practices, and encouraging a competitive and innovative market environment. Firms are called upon to critically evaluate their operations against the FCA’s outlined priorities and take proactive steps to align with regulatory expectations. This involves a holistic approach to governance, risk management, consumer support, and product design, ensuring that consumer welfare is at the forefront of business strategies. The actions and changes implemented in response to this letter will not only contribute to regulatory compliance but also to the long-term sustainability and reputation of firms within the Consumer Lending sector.

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