The Financial Conduct Authority (FCA)has unveiled a variety of new proposals relating to various parts of the high-cost credit sector. These proposals specifically concern overdrafts, rent-to-own, home-collected credit and catalogue credit/ store cards.

Regarding overdrafts, the proposals include:

  • Requiring banks to send mobile alerts to customers warning them of the charges they might face by becoming overdrawn
  • Stopping banks from describing the amount of the overdraft as ‘available funds’ in communications with customers
  • Additional disclosure requirements to make it clearer that an overdraft is a form of credit
  • Requiring banks to provide online tools that can carry out eligibility assessments, and introduce online calculators that show the costs of overdrafts for different usage patterns

The FCA has also indicated that it may propose banning fixed overdraft fees at some stage in the future, and imposing a price cap, although these measures are not being formally proposed at this stage.

The FCA notes that fees for unarranged overdrafts can sometimes be more than ten times higher than the fees for borrowing similar amounts via a payday loan.

Regarding rent-to-own, the proposals include:

  • Banning firms from selling extended warranties at point of sale
  • Considering a formal price cap on rent-to-own prices

At this stage, the FCA has not confirmed that a price cap will definitely be introduced, nor has it given details of the level of any cap. However, it does say that changes could be introduced in the rent-to-own market by April 2019.

The regulator notes that rent-to-own costs can be very high, and that it has seen examples of consumers needing to pay more than five times the amount that the same goods would cost if bought on the high street.

Regarding home-collected credit, the proposals include:

  • Banning firms from offering new loans, or a re-financing arrangement, during a visit to the customer’s home, unless the customer makes a specific request regarding this
  • Additional controls over the re-financing process, including a requirement for firms to explain the comparative costs of taking out a new loan alongside an existing loan

Regarding catalogue credit and store cards, the proposals include:

  • Requirements for firms to do more to assist customers in persistent debt, similar to the obligations which were recently imposed on credit card firms
  • An obligation to clearly explain the implications and costs involved with not meeting repayment obligations on ‘buy now pay later’ deals
  • Preventing firms from increasing the interest rate, or raising an individual’s credit limit, if they are in financial difficulty
  • Requiring firms to do more to identify customers at risk of financial difficulty

The consultation on these proposals ends on August 31 2018.

Andrew Bailey, Chief Executive of the FCA, said:

“High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.

“The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.

“Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place. However, we believe more fundamental change is needed in the way banks charge customers for overdrafts. Given the size of the market our work here will be completed as part of our wider review into retail banking.”

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