The Financial Conduct Authority (FCA) has devoted considerable resources to supervising the UK’s consumer credit firms since it took over as regulator of that sector in 2014. The regulator’s chief executive made some suggestions as to actions it may take in the future, when he gave a speech in May 2018 entitled “High-cost credit: what next?”
Addressing a New City Agenda event in London, Andrew Bailey said that his organisation was actively monitoring overdrafts and other high-cost credit products and was “examining a range of potential approaches to address the harm we see to consumers using these products.” He added that the FCA would set out its approach within the next month.
Mr Bailey also made reference to the efforts the FCA is making to develop alternatives to high-cost credit.
The FCA chief said that, within the consumer credit sector, the following were high priority areas for the regulator:
- Home-collected credit
- Catalogue credit
A significant portion of the speech was devoted to various statistics from the FCA’s Financial Lives survey, including:
- 9 million adults have been overdrawn in the last 12 months, of which 3.1 million have used an unauthorised overdraft
- Young single parents are three times more likely to use high-cost credit than the average adult
- The 25-34 age group hold the highest levels of debt, and 37% of people with a payday loan fall into this age group
Mr Bailey went on to reveal data from other sources which perhaps illustrates why the FCA regards the four areas listed above as being ones to focus on:
- Annual revenues from unarranged overdrafts are around 200% of the average amount outstanding, whereas for arranged overdrafts, it is only around 25%
- For a typical rent-to-own customer, their debt on this product represents more than a third of their overall debt, and is significantly larger than any of their other debts
- The typical home collected credit customer has around one quarter of their overall debt in this type of product
He also added that he was concerned about the high level of arrears exhibited by catalogue credit borrowers.
Mr Bailey acknowledged that “credit can provide a socially valuable function for people” but added that the FCA’s payday loan price cap illustrates that “there are consumers for whom their economic welfare improves if they do not have access to credit.”
On this subject, he also commented:
“Credit is not the right option for all consumers. There is a group of consumers who are on such low or uncertain incomes or whose personal circumstances mean that any lending is likely to be inappropriate or unaffordable. Parts of the social welfare system are designed to provide assistance to them.”
Mr Bailey also remarked that there was another group of consumers who he believed should only be accessing credit in specific circumstances. Here his comments were:
“There is another group of consumers who are on low incomes and may be financially vulnerable but are nonetheless able to sustain low repayments for small sums. However, the personal circumstances of these consumers can mean they are especially susceptible to unexpected changes to their income or expenditure demands, for example dealing with changes to their living arrangements at short notice. Reflecting risk of default, borrowing for these consumers is particularly costly, potentially further decreasing their ability to meet their wider financial obligations and increasing risk of harm from the consequences of default. This is particularly the case where they need to borrow to obtain essential household goods, such as a fridge or washing machine.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article