Financial Conduct Authority (FCA) chief executive Andrew Bailey highlighted some of the key ways that his organisation is intervening in the consumer credit sector when he addressed a meeting of the trade association the Finance and Leasing Association in late February 2018.

Mr Bailey began by describing some of the wider economic events that relate to the credit market, including record low base interest rates and increased levels of household debt.

The FCA chief highlighted that the rise in household debt levels has largely been driven by younger people. He commented that the average person aged between 18 and 34 has debt of £8,000, and that in the 25-34 age group, 36% have been overdrawn in the last 12 months, and 23% consider themselves to be over-indebted.

Mr Bailey said he was pleased to see that data from credit reference agencies suggests that credit growth has primarily been driven by people who do not hold mortgages, and not “disproportionately driven by those who are most vulnerable.”

He did strike a note of caution though when he told firms operating in the high-cost credit sector to expect a higher proportion of vulnerable customers.

Bringing these together, he warned all credit firms to conduct rigorous affordability assessments on all customers, by saying:

“Firms need to ensure that any lending they advance, whether high-cost credit or not, is affordable and sustainable. Of course, borrowing can become unaffordable due to a change in circumstances, whether personal or macro-economic, that could not have been reasonably foreseen. But it is important that firms guard against that risk, by having effective policies and procedures for assessment of creditworthiness, including affordability.”

His next point though related to people who, for whatever reason, cannot maintain the required repayments, and here he urged firms to treat customers fairly, by adding:

“Affordability assessment can never be an exact science, and things will happen that were unforeseen, so we also want firms to monitor customer accounts and act promptly where there are signs of actual or potential financial difficulties, and to treat customers in default or arrears difficulties with forbearance and due consideration.”

Turning specifically to the credit card market, Mr Bailey commented that five million people are experiencing difficulty in paying off their card balances, that some are repaying up to £2.50 in interest and charges for every £1 repaid, and that credit cards have inadvertently become a long-term method of borrowing, a purpose for which they were not originally intended.

The FCA chief made reference to the new rules for card firms introduced by his organisation. Firms need to identify customers who have been in persistent debt over 18 months, and to contact them prompting them to change their repayment pattern and informing them their card may ultimately be suspended if they do not act. After 36 months of persistent debt, the firm must offer the customer a way to repay their balance in a reasonable period. In these circumstances, firms should consider reducing, waiving or cancelling any interest, fees or charges.

Mr Bailey added that he was concerned about the high costs of unarranged overdrafts, and that the FCA continued to closely monitor the rent-to-own sector.

In conclusion, he promised that the FCA would be “proportionate in [its] approach” to the credit sector, and that this would be achieved “by assessing the potential risks to customers, the scale of likely possible harm and the potential vulnerability of those customers.”

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