FCA publishes examples of how consumer finance firms should test fair value
The regulator's findings set out what it wants to see on fees, from payment reminders to limits on repeat charges, though they create no new requirements.
The Financial Conduct Authority published examples on Thursday of how consumer finance firms should judge whether their fees and charges give customers fair value.
The document draws on supervisory reviews of selected firms, products and services, carried out after the regulator said in March it would look at whether fees and charges represent fair value. No firms are named, and the FCA says the examples do not create new requirements or prescribe specific actions.
The test comes from the Consumer Duty. A product offers fair value where the amount paid is reasonable relative to its benefits.
What counts as good practice
The stronger assessments looked at the whole cost to the customer, including non-financial costs such as time and effort, and backed their conclusions with evidence of customer outcomes. They also compared results for different groups of customers, including those with characteristics of vulnerability, rather than treating everyone as one group.
The most practical part for borrowers covers charges. The FCA gave these as examples of controls it had seen:
- giving customers time to pay and sending a reminder before applying a missed payment charge
- limiting the number of fees that can be charged within a set period
- waiving, refunding or stopping fees for customers in financial difficulty
It also wants fees explained clearly and prominently, with testing to check that customers understood them.
Where firms could improve
The regulator said some firms did not fully account for fees when estimating the total price a customer might pay, or leaned on assumptions and narrative without enough supporting evidence. Others did not adequately monitor repeat or cumulative charges. Having a control in place, it said, does not show that it is working.
Smaller firms were told they might be able to use information they already hold, such as complaints and arrears data. The FCA said proportionality does not mean a lower standard, and it wants firms to consider how the examples apply to their obligations under the Duty.
