The City watchdog has written to doorstep lender Non-Standard Finance (NSF) warning that its proposed takeover of rival Provident could break consumer protection rules.
Philip Salter, director of retail lending at the Financial Conduct Authority (FCA), said any transformation plans would need to adhere to regulations.
He said: “I would also like to make clear that any change in controls or a shift in culture towards one that is driven by profits and incentives at the cost of good customer outcomes resulting in unaffordable lending will be something we act on immediately.”
He said NSF’s plans to reintroduce the Repayment Option Plan (ROP), a payment he said had “caused harm to a significant number of consumers”, would require the approval of the FCA.
Last year, Provident was ordered to repay £170 million and a £2 million fine over the product, after being found to have breached mis-selling rules.
“Any proposals for a reintroduction of a version of this product would require close engagement with the FCA to satisfy us that lessons have been learned and to ensure that costs and terms are made clear to customers and that customers are treated fairly,” said Mr Salter.
The proposed deal has already prompted the intervention of the Competition and Markets Authority (CMA), which last week issued an initial enforcement order which demands that NSF does not make any move to combine the two businesses while it evaluates whether to investigate.
Provident has rebuffed NSF’s £1.3 billion takeover approach, describing it as “highly opportunistic” and “irresponsible”.
In response to the publication of the FCA’s letter, Provident released a statement advising its shareholders to take no action.