FCA warnings about sub-prime lending and debt management scams are up 85% to 24 during the three months of lockdown compared to just 13 in the same period last year, as fraudsters look to capitalise on COVID-19 financial stress, says accountancy and business advisory firm, BDO LLP.
The increased numbers of fraudulent or unregulated lenders being identified by the FCA suggests they are stepping up their targeting of borrowers who are struggling with unemployment or with incomes cut by furloughing. It is likely that fraudsters suspect consumers may be even more susceptible to scams at present, due to having limited traditional borrowing options available to them.
Job cuts, furloughing and even the reduced amount of work in the informal economy have increased demand for short term finance as borrowers seek additional money to tide themselves through the lockdown.
A reduced risk appetite amongst regulated lenders during the crisis may also be creating more of an opportunity for unregulated lenders.
However, the FCA has increased its publicity campaign to make it more difficult for unregulated sub-prime lenders and debt management scammers to operate. The regulator actively searches for unregulated websites or for websites that impersonate those of regulated lenders.
The FCA’s increased regulation of the sub-prime lending market over the last few years has ensured that consumers using regulated consumer lenders get a far better deal than they did a decade ago from comparable lenders. Regulated lenders must adhere closely to the principle of treating customers fairly and interest rates on high-cost short-term lending are capped.
Sub-prime lenders cater to low income borrowers or individuals with poor credit ratings, who would not typically qualify for lower interest rate loans from high street lenders. Regulated debt management companies, which some fraudsters impersonate, work to create a feasible repayment plan for outstanding debts between an individual and their creditors.
Richard Barnwell, Partner at BDO said, “With the number of scams rising significantly during lockdown, it would suggest that opportunistic fraudsters are using the coronavirus crisis as a chance to target this part of the consumer finance market.”
“This is going to be an exceedingly difficult time for many consumers as their income levels may be significantly reduced. It is important that individuals who are looking to use a sub-prime lender or debt management company, opt for one regulated by the FCA and check their details against the FCA website.”
“Unfortunately, technology makes it extremely easy for fraudsters to set up websites and call centres which, to the casual observer, appear to be legitimate. It’s easy to see how consumers might be duped.”
“The FCA is doing its best to clamp down on this problem by actively naming and shaming scammers but shutting down overseas operators is never easy.”
“Within the regulated part of the high-cost short-term credit market the standards of conduct have radically improved since the credit crunch and the last recession. The FCA deserves a lot of the credit for that.”
FCA research shows that high-cost short term loans are used most frequently (on a per capita basis) in the North West at 125 loans per 1,000 adults. Northern Ireland has the lowest usage at 75 loans per 1,000 adults.