Financial Services Compensation Scheme

(asked on 11th March 2020) - View Source

Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what plans the Financial Conduct Authority has for the Financial Services Compensation Scheme to cover payday lenders that mis-sell or go into administration.


Answered by
John Glen Portrait
John Glen
Paymaster General and Minister for the Cabinet Office
This question was answered on 17th March 2020

The Government has fundamentally reformed regulation of the consumer credit market, including payday lending, by transferring responsibility to the Financial Conduct Authority (FCA) in 2014. This more robust regulatory system is helping to deliver the Government’s vision for a well-functioning and sustainable consumer credit market which is able to meet the needs of all consumers.

Where the FCA has found issues with firms’ practices through its supervision process, it has acted. However, many complaints regarding payday lenders originate before the FCA was responsible for the regulation in this market.

When a firm enters administration, assets are pooled and used to cover customer redress claims and administration costs with these claims being addressed in order of the creditor hierarchy. The payment of redress claims is a matter for the administrators.

The Financial Services Compensation Scheme (FSCS) is the compensation scheme of last resort for customers of UK authorised financial services firms and is funded by a levy on industry. The FSCS is an independent non-governmental body and carries out its compensation function within rules set by the Prudential Regulation Authority (PRA) and the FCA. The FCA has the power to decide which activities are given FSCS protection. In 2016, the FCA decided not to extend FSCS protection to most consumer credit activities because it believed other regulatory requirements were sufficient. The full reasoning behind the FCA’s decision is set out in a letter from its Chief Executive to the Chair of the Treasury Select Committee on 15 February 2019.

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