Naseeb Chuhan

Jonathan  David  Leach 
Area  Coroner 
West Yorkshire  (Eastern) 
Coroner's Office  and  Court 
71  Northgate 
Wakefield 
West Yorkshire 
WFl  3BS 

FINANCIAL 
CONDUCT 
AUTHORITY 

12 Endeavour Square 
London 
E20 lJN 

Tel:  +44 (0)20 7066 1000 
Fax:  +44 (0)20 7066 1099 
www.fca.org.uk 

25  July  2018 

Our Ref: 

Your Ref: 

Dear Mr Leach 

REGULATION  28:  REPORT TO PREVENT FUTURE  DEATHS - MR NASEEB CHUHAN 

Thank you  for your letters of 6 April  and  31  May  2018  and  report sent pursuant to 
paragraph  7,  Schedule  5,  of the Coroners and  Justice Act  2009 and  regulations  28  and 
29  of the Coroners  (Investigations)  Regulations  2013.  Please  accept this letter as  our 
formal  response  under paragraph  7(2) of Schedule  5 to that Act. 

I  am  sorry to hear of the sad  circumstances surrounding the death  of Mr Chuhan.  I 
understand that the Chief Coroner may copy this response  to a  number of interested 
persons,  including the  parents  of the deceased, to  whom I  extend  my deepest 
sympathies.  We  are also  copying  this  letter to Mr Chuhan's parents. 

I  apologise for the delay in  responding  substantively.  I  mentioned  in  my letter of 12 
June that we  have  received  a  letter from  Mr Chuhan's  parents  (which  I  refer to below 
as  the  parents' report). They  made  many detailed  points supported  by  a significant 
amount of detailed  material, which  I  have taken account of in  this response.  Since this 
letter includes confidential  information  relating  to Mr Chuhan  andhis  parents,  within 
the  meaning  of section  348 of the  Financial  Services and  Markets Act 2000,  and 
personal  data  for the  purposes of the data  protection  legislation  we  have  requested, 
and  obtained,  the parents' consent before disclosing the relevant information to you. 

The  references  in  this  letter to numbered points correspond to the  numbered  points 
made  in  the parents' report. 

Your report and  Mr Chuhan's circumstances touch  upon  several  areas that are of great 
importance to the FCA,  including  preventing  irresponsible  lending,  consumer 
vulnerability and  the risks  associated  with  payday loans  (high-cost short-term  credit). 

Registered as a Limited Company In England and Wales No. 1920623. Registered office as above 

 
 
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Mr Chuhan's  parents have identified serious  concerns  about the way in  which  he  was 
treated  by several  firms which  are authorised  by the  FCA  and,  at point 6,  ask about the 
FCA's  powers.  We  take accusations of harm  very seriously and  in  cases  like this look 
into what may have gone wrong  with  firms' systems and  controls,  which  should  be 
designed to identify vulnerable customers.  Where we  find  a firm  has  failed to act in  an 
appropriate  manner we  have a number of powers that enable  us to intervene.  I  have 
asked  our supervisory team to look at the evidence  provided to us  and,  where  we  find 
wrongdoing, take steps to ensure the firms are acting  in  an  appropriate  manner.  More 
generally,  our supervisors can  refer appropriate cases  to enforcement colleagues.  Our 
enforcement powers are described  in  detail  in  our Enforcement Guide 1

• 

I  can  assure you  that, since  we  took on  the regulation  of consumer credit in  2014,  we 
have taken,  and  continue to take,  many steps to drive up  standards in  this market.  A 
key  part of this has  been  assessing  against our threshold  conditions firms applying  for 
authorisation to engage  in  credit-related  regulated  activities.  We  have also  worked 
closely with  many firms to improve how they assess  creditworthiness  (including 
affordability)  and  how they deal  with vulnerable customers and  those in  financial 
difficulties. 

In the  rest of this  letter, I  explain the rules  we  have in  place  designed to prevent harm 
to  borrowers and  the further action  we  are taking to improve these.  I  believe that this 
will  reduce the risk  of deaths occurring  in  similar circumstances.  I  have  grouped  my 
points by  reference to the points raised  in  the parents' report. 

Preventing irresponsible lending (points 1, 4, 5  and 8) 

I  have taken these  points together - which  cover preventing  irresponsible lending, the 
standards we  expect of firms and  proportionality of firms' affordability assessments  -
as  they are  interlinked. 

First,  it is  important to explain  the overarching  standards  expected  of firms carrying 
out regulated  consumer credit activities. They  must meet our threshold  conditions for 
authorisation and  comply with  our high-level  principles for businesses  and  our rules. 
Principle 6 requires firms to treat customers fairly,  and  this is  supported  by detailed 
conduct of business rules in  our Consumer Creditsourcebook ({:-OJ\JJ:).  Firms  must_also" -_  
comply with  relevant requirements of the Consumer Credit Act  1974 (CCA)  and  other 
consumer protection  legislation. 

We  require  lenders to assess  a borrower's creditworthiness,  including  affordability, 
before  deciding  whether to  lend.  They must provide  pre-contractual  information  and 
explanations,  highlighting the costs  and  risks of the loan.  Once  this has  been  granted, 
they must monitor repayments and take appropriate action  where there  are  signs of 
actual  or possible  repayment difficulties.  Where  appropriate, this should  include 
providing  contact details for not-for-profit debt advice  bodies.  If the customer falls  into 
arrears or default, the firm  must treat the customer with  forbearance  and  due 

1  https://www.handbook.fca.orq.uk/handbook/EG.pdf 

 Page  13 

consideration,  allowing  reasonable  time to repay.  We  also  have  rules  in  place  relating 
to vulnerable  consumers  which  I  refer to further below. 

In relation  to affordability,  we  require firms to undertake a creditworthiness 
assessment before  lending  based  on  sufficient information. They must consider the 
potential  for the commitments  under the  regulated  credit agreement to  adversely 
impact the customer's financial  situation,  and  the customer's ability to  make 
repayments when  due .. Our rules  make clear that what is  appropriate in  any given  case 
will  depend  on  the circumstances,  for example,  on  the type and  amount of credit and 
the potential  risks to the customer. 

Where  appropriate, the firm  should  have  regard  to the customer's financial  position  at 
the time of seeking  credit,  including  any indications that the customer is  experiencing, 
or has  experienced, financial  difficulties. The  creditworthiness assessment need  not, 
depending  on  the circumstances,  involve a full  income and  expenditure assessment 
but,  if not, the firm  must reasonably satisfy itself by other proportionate  means that 
the customer can  afford the credit.  Where  expenditure is  taken  into account,  it is 
unlikely to be  sufficient for a firm to rely solely on  a consumer's declaration  (CONC 
5.3.1G(4)(b)). 

We  consulted  last July,  in  CP17/27,  on  proposed  changes to our rules  and  guidance on 
assessing  creditworthiness (including  affordability). These  are  aimed  at further 
clarifying  our regulatory expectations,  including  that firms  must consider the 
consumer's ability to repay without taking  out further borrowing to do  so. 

These  changes  are also  designed to make clear that an  assessment of income is 
required  in  almost all  cases,  unless the firm  can  demonstrate that it is  obvious in  the 
specific circumstances that the credit is  affordable.  Where  income is  required to be 
taken  into account, the borrower's  non-discretionary expenditure  (including  credit 
commitments)  would  also  normally need to be  considered,  along  with  any reasonably 
foreseeable  changes  in  income  and  expenditure over the  period  of the credit. 

We  also  consulted  on  clarifying  how expenditure should  be  taken  into account where it 
is  required  to form  part of the creditworthiness assessment.  This  includes a proposed 

- -~  r~u~le  that a firm  must take r:easonable  steps to determine tt:Le amount,  or make a 

reasonable  estimate,  of the  borrower's current non-discretionary expenditure.  In the 
consultation  paper,  we  explain that Office of National  Statistics  (ONS)  data  can  form 
the basis  of an  estimate,  in  much the same  way as  Mr Chuhan's  parents suggest in 
their report. 

We  plan  to issue a policy statement,  with final  rules  and  guidance,  shortly. 

Record  keeping  (point 2) 

It is  important that firms  keep  records that enable them, and  us,  to understand  how 
decisions  were  made and  whether customers  were treated  fairly.  Our Senior 
Management Arrangements,  Systems and  Controls sourcebook at SYSC  9.1  sets out 
our expectations  in  this regard.  This  explains that firms should  retain  records for as 
long  as  relevant for the purposes for which  they are  made. 

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In CP17/27,  we  proposed  amplifying these  requirements to make  clear that consumer 
credit lenders must keep a record  of each  time they lend,  and  that this  must be 
sufficiently detailed to  demonstrate to us  that its creditworthiness assessment was  in 
accordance with  our rules. 

Role of credit information (point 3) 

We  recognise that c;:redit  information,  supplied  to and  provided  by  credit reference 
agencies,  can  play an  important role  in  firms' affordability assessments.  However, as 
Mr Chuhan's  parents note,  consumers can  experience  harm if this information  is  not 
shared  effectively, on  a timely basis  or of good  quality. 

We  announced  in  our Business  Plan  for 2018/19 our intention to launch  a market study 
on  credit information.  We  will  collect evidence to gain  a better understanding  of the 
potential for harm  in  this market and,  if necessary,  identify remedies.  Our aim  is  to 
ensure that this important market works as  well  as  possible to  maximise the benefits 
that it can  deliver for consumers.  We  will  work with  other relevant regulators, 
including the Information Commissioner's Office. 

Vulnerability and debt advice (point 7) 

We  have specific  rules  relating  to vulnerable  customers,  including  in  relation-to  lending. 
Our creditworthiness rules  expressly require  a firm to cons!der (where -appropriate)  the 
vulnerability of a customer when  determining the extent and  scope  of a 
creditworthiness assessment.  A firm  must also  establish  clear,  effective and 
appropriate policies for the fair and  appropriate treatment of particularly vulnerable 
customers.  Our rules  state that firms should  not target consumers with  loans  which  are 
unsuitable for them  if they are  indebted. 

Consumer vulnerability is  an  integral  part of our recent  Future Approach  to Consumers 
consultation  and  we  will  be  publishing  our findings  on  this  in  the summer. 

We  also  recognise the additional  risks  associated  with  high-cost credit products 
including  payday  loans.  We  have  restricted  the number of times that payday  lenders 
can  refinance  a loan,  and  required  them to include  a prominent risk warning  in 

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Speed with which payday loans are granted (point 9) 

Our rules  cover several  areas  of pre-contract conduct by lenders.  We  recognise that 
automation and  innovation is  becoming  more common  place across financial  services 
but we  do  not specify a  minimum timeframe within  which  a firm's creditworthiness 
assessment must take  place.  While  automation and  innovation  can  benefit consumers, 
we  also  recognise  that it can  pose  risks to the more vulnerable  in  society. 

Our overall  approach  is  to sustain' a regulatory environment where consumers and 
firms can  maximise the opportunities of competition,  innovation  and  big  data  while 
reducing  or mitigating the associated  harms. 

 Page  I 5 

Cost of payday loans (point 10) 

We  too had  reservations  over the potentially high  cost of payday loans.  One  of our 
first major initiatives after taking  on  regulation  of consumer credit was  to consult on  a 
price cap  for high-cost short-term  loans.  This  was  introduced  in  January 2015  and 
limits interest and  fees to 0.8% per day of the amount borrowed, with  consumers 
never having to pay  more in  interest, fees  and  charges than the amount they 
borrowed. 

We  considered  setting  this cap  in terms of the Annual  Percentage  Rate  (APR)  but 
decided  not to do  so.  While  it is  useful  for comparing  the basic cost of loans of the 
same size  and  duration that are  paid  back on  time,  it is  not easy to compare  loans  of 
different size  and  length  - for example,  a shorter loan that costs the same  as  a longer 
one would  have a much  larger APR.  Chapter _5 of CP14/10  explains this  in  more detail. 

We  reviewed  our price cap  recently and  published  a feedback statement in  July  2017 
(FS17/2).  After careful  consideration,  we  decided to maintain the  price  cap  at its 
current level,  with  a commitment to review it again  within  3 years. 

In May we  published  two consultation  papers  (CP18/12  and  CP18/13)  as  part of an 
ongoing  review  of high-cost credit.  There are two aspects to this that are  particularly 
relevant to the concerns  raised  in  this case. 

The first is  in  relation  to overdrafts,  and  particularly the price consumers  pay for using 
them.  I  note that Mr Chuhan  had  repeatedly  used  these.  We  have  published  analysis that 
shows  a case  for considering  more direct intervention in  the way that firms  price their 
overdrafts, and  we  are  in  the process  of inviting views.  We  are also  considering  whether 
and  how firms should  improve their monitoring  of consumers  who  repeatedly  use 
overdrafts.  As  part of this,  we  are  looking  at how firms could  help consumers find the 
most appropriate form  of credit for their needs and  to find  ways to assist consumers in 
a pattern  of repeated  overdraft borrowing.  If our further analysis shows  that 
intervention is  warranted,  we  aim  to consult on  proposed  rules  by the  end  of 2018. 

Secondly,  we  are doing  work to foster the growth of alternatives to high-cost credit. 
Greater availability and  awareness of alternatives would  reduce the  number of people 
turning to high-cost credit services.  It would  also  provide options for consumers who 
may no  longer be  able to access  high-cost credit after any possible  interventions we 
make.  We  are  keen  to improve outcomes for these  consumers  and  in  the  mid term  we 
think there is  scope to explore wider issues  with  Government and  industry.  In the 
short-term, we  have  already invited firms with  innovative alternatives to work with  us 
and trial their approaches. 

- - - - -

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I  hope you  will  see  from the above that we  take extremely seriously the risk of harm 
arising  from  irresponsible  lending  in  general  and  high-cost credit in  particular.  Taken 
together,  I  believe that our existing  rules,  and  our current and  planned  work, 
demonstrate that we  have taken  - and  continue to take  - action  which  will  have the 
effect of reducing  the risk of deaths occurring  in  similar circumstances to those of Mr 
Chuhan. 

Yours  sincerely 

General Counsel