The United Kingdom's Financial Conduct Authority (FCA) will conduct an in-depth review of debt collection practices of payday lenders when it takes on responsibilities for regulating consumer credit markets on April 1.
A priority for the regulator will be to review how debt is being collected in the market. Sixty percent of complaints to the Office of Fair Trading (OFT) are related to practices in this area.
Payday lenders and other high cost short-term lenders will be the subject of an in-depth review into the way they collect debts and manage borrowers in arrears, the FCA reported.
"The review will look at how high-cost short term lenders treat their customers when they are in difficulty," the FCA said. "This will include how they communicate, how they propose to help people regain control of their debt, and how sympathetic they are to each borrowers individual situation. The FCA will also take a close look at the culture of each firm to see whether the focus is truly on the customer as it should be - or simply oriented towards profit."
The OFT is the current regulator of consumer credit providers in the UK but the FCA, in taking on this role, will have more powers to intervene. The FCA's new role as the country's top financial regulator will be similar to how the Consumer Financial Protection Bureau operates. The FCA also operates independently within the UK government.
The move comes as several U.S.-based debt collectors and debt buyers push into the UK market, a growth area given the maturing UK consumer credit market and its status as the sixth-largest economy in the world.
In February, Encore Capital Group Inc., based in San Diego, announced the acquisition of UK-based Marlin Financial Services, a debt buyer, for an estimated $481 million through Cabot Credit Management, a UK subsidiary of Encore acquired last year.
Key U.S. competitor Portfolio Recovery Associates, based in Norfolk, Va., last month announced the acquisition of certain UK assets from Pamplona Capital Management LLP.
In January 2012, Portfolio Recovery Associates purchased 100% of the equity interest in UK-based Mackenzie Hall for approximately $51 million in cash.