Release Date: 9th June 2022
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has fined TFS Loans Limited (in administration) £811,900 for failing to adequately assess the creditworthiness of guarantors and overcharging customers in arrears. TFS offered guarantor loans, which are typically aimed at borrowers with poor credit histories. If the borrower fails to make payments, the guarantor is legally obligated to do so.
Reasons for the Fine:
Between 2 November 2015 and 10 April 2018, TFS breached several FCA principles and regulations by not collecting sufficient information to carry out effective creditworthiness assessments of guarantors. They failed to consider essential information such as the guarantor’s other expenses (food, clothing, energy, childcare, medical expenses), instead relying on a flawed, formulaic approach that assumed household expenditures without proper verification.
Additionally, TFS overcharged customers in arrears by imposing an arrears management fee beyond the three months stipulated in their policy. This impacted 177 loan agreements during the relevant period.
Key Takeaways:
- Proper Creditworthiness Assessment: Lenders must collect comprehensive information on guarantors’ financial situations to ensure they can meet potential obligations.
- Adherence to Policies: Companies should follow their policies accurately, particularly regarding fees charged to customers.
- Effective Risk Management: Adequate risk management systems must be in place to organise and control a firm’s operations responsibly and effectively.
- Cooperation with FCA: Firms should cooperate fully with regulatory investigations and be transparent in sharing information.
Conclusion:
The FCA’s action against TFS Loans Limited underscores the importance of adhering to regulatory requirements for creditworthiness assessments and the correct application of fees. This case highlights the need for firms to establish and follow robust policies and ensure comprehensive evaluations to protect consumers, particularly those in vulnerable financial situations.
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