British regulator warns payday lenders over loans and compensation

FILE PHOTO - The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

LONDON (Reuters) - Britain’s financial regulator has fired a warning shot at payday lenders amid a rise in complaints about unaffordable loans and following the collapse of Wonga earlier this year.

The Financial Conduct Authority (FCA) said on Monday that it had sent a so-called “Dear CEO” letter to providers of high-cost short-term credit asking them to assess whether their creditworthiness assessments are compliant and whether borrowers should be reimbursed.

The watchdog has also told lenders to inform it immediately if the cost of compensating customers with grievances will leave firms unable to meet their financial commitments.

The warning comes amid an increase in complaints about unaffordable lending, including where so-called chains of loans, where an individual borrows repeatedly over an extended period, the FCA said.

It also follows the failure of payday lender Wonga in August, which collapsed following a jump in customer compensation claims after a crackdown on the sector in Britain.

Reporting by Ben Martin; editing by Simon Jessop