The reasons why additional regulation of consumer credit is necessary, the need to treat customers fairly and the treatment of vulnerable customers were all covered by Financial Conduct Authority (FCA) chief executive Martin Wheatley in a speech to the Credit Today summit. His speech took place only two days after his organisation took over as regulator of the credit industry.
Mr Wheatley said that consumer credit has grown to such an extent that the UK now has the highest level of unsecured borrowing, as a percentage of Gross Domestic Product, of any European country. He went on to highlight that the National Audit Office had claimed that some £450 million of customer detriment was occurring under the previous Office of Fair Trading regulatory regime; and then listed a number of organisations – including StepChange, Citizens Advice and Debt Helpline – who were expressing growing concerns about matters such as debt management practices, prices, unsuitable advice, lack of competition and products not being designed with customers’ interests in mind. “It’s been clear for some time now that strong, forward-looking oversight is important for all concerned: firms as well as consumers,” said Mr Wheatly in a further attempt to justify the change of regulator.
Mr Wheatley reminded his audience that the FCA has a statutory objective to make markets work well for consumers.
Next, he said that the FCA’s immediate priority would be to ensure firms had “sustainable and well-controlled business models, supported by a culture that is based on ‘doing the right thing’ for customers.” This will include assessing whether products are being targeted at the right customers, whether costs and other information are being clearly disclosed and whether adequate assessments are being made of borrowers’ ability to repay their debt.
Mr Wheatley then made reference to the FCA’s research into consumer credit for customers in vulnerable circumstances. This research, which relates to those in the bottom 10-15% income bracket, found evidence of low levels of confidence in managing personal finances, a mis-trust of banks and large credit providers, inadequate assessment of the cost of credit and a problem around ‘fragmented borrowing’ – accumulating lots of different small debts that were manageable by themselves but together constituted more of a problem.
He made reference to the fact that 18% of the population are ‘over-indebted’, and that 20% did not know whether a lower or higher Annual Percentage Rate was best. In view of the FCA’s concerns over the treatment of vulnerable customers, investigations will take place into areas such as: interest rate caps, payday lending, logbook lending and debt management.
He then highlighted that the FCA will conduct a market study of the credit card market before the end of 2014.
Mr Wheatley concluded by highlighting that all parties should benefit from the new regime. “The consumer credit market