This Report by FinCoNet on the Digitalisation of Short-Term, High-Cost Consumer Credit (“STHCCC”) represents the output of a detailed survey of regulators in 25 jurisdictions, as well as a review of international literature published on this topic to date. It forms part of FinCoNet’s continuing work on responsible lending and on digitalisation, building on FinCoNet’s previous published reports on those topics.
The Report finds that, used properly, digitalisation has the capacity to transform the availability and provision of credit for the better. However, in the context of STHCCC, it may also introduce new risks and aggravate the risks already associated with these types of loans. The Report also points out specific behavioural risks arising from the convenience of digitalised STHCCC and its removal of the need for human interaction.
The Report finds a wide variation in the nature of the products available digitally in different jurisdictions and a variety of consumer protection issues encountered as a result. This points to the emerging nature of this phenomenon. It also highlights the benefit of international collaboration amongst Supervisors on this topic. This is all the more so given the evidence in the Report that most regulatory frameworks do not distinguish between credit provided through digital channels or traditional channels. This seems appropriate to ensure uniformity of protection for consumers. However, it may also be a symptom of the risks arising specifically from digitalised STHCCC not having been fully considered.
As an international organisation of consumer protection Supervisors, FinCoNet offers a unique forum for collaboration amongst Supervisors on this topic. Based on these findings, FinCoNet will continue its work towards the development of Guidance for Supervisors on the setting of Standards in the field of digitalised STHCCC. This work will draw on the findings of this Report, focusing on the topics identified (collated on page 6 and 7 of this Report). These include the avoidance of gaps emerging in the consumer protection framework (including in the context of cross-border services), approaches to authorisation and oversight, the role of disclosure, consumer access to recourse mechanisms, the mitigation of the risk of over-indebtedness (including risks arising from behavioural biases) and the mitigation of security risks.
Through this work, FinCoNet seeks to provide a platform for Supervisors to exchange views through the auspices of FinCoNet regarding effective approaches to addressing issues arising from the digitalisation of STHCCC and its impact on responsible lending practices. This FinCoNet Report represents therefore an important contribution to the development of consumer protection globally in this emerging field of financial services.
