Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA), addressed the Responsible Finance Conference in March 2018. His speech looked at more innovative approaches that could be used in the consumer credit sector.
In the opening section of his speech, Mr Woolard commented that “for millions of people, credit is woven through the fabric of everyday life.” To illustrate this point, he said that in Glasgow, where he was speaking, 41% of adults have outstanding non-mortgage debt, and that 11% of these have high-cost credit debt. Across the UK, some 24 million people are in debt on some form of credit arrangement.
He went on to describe four ways in which the FCA approached the credit sector:
- Authorising firms, supervising their level of compliance with existing rules, and taking enforcement action where necessary
- Proposing new rules where it believes these are needed
- Working with other parties to address market failure
- Promoting competition and innovation in the interests of consumers
The FCA director gave his speech on the same day as his organisation announced that a third rent-to-own firm has been forced to pay redress to its customers. The FCA found significant issues with the firm’s affordability assessments and its collection practices.
Mr Woolard highlighted that rent-to-own was often used by some of the most vulnerable members of society and described the sector as one where “action … was most sorely needed.” He said that the FCA had obtained a total of £18 million in redress for rent-to-own customers, and that since taking over as consumer credit regulator in 2014, it had in fact secured a total of £900 million in compensation for consumers across all areas of the consumer credit marketplace.
Next, he described two areas where the FCA has introduced new rules, namely its price cap on payday loans and other forms of high-cost credit, and the new requirements for credit card providers to assist customers in persistent debt. Mr Woolard suggested that the new credit card rules – which may require firms to reduce, waive or cancel any interest, fees or charges in certain circumstances – would save consumers between £310 million and £1.3 billion a year in lower interest charges.
Despite the work the FCA has already done in the last four years, Mr Woolard acknowledged that there was much more to be done and referred to the fact that the regulator’s Financial Lives survey identified that 4.1 million people in the UK are considered to be in some form of financial difficulty.
Bank overdrafts were singled out as an area where the FCA may act in the future. Here, Mr Woolard made reference to “disproportionately high fees and charges”, added that “there appears to be no clear relationship between the amount borrowed by the consumers and the amount charged by the firm”, and suggested “that there is a case to consider fundamental reform.”
In the final section of the speech, he made reference to the FCA’s Regulatory Sandbox, and invited firms wishing to test innovative new approaches to credit to get in touch with the regulator.
At the same conference, actor Michael Sheen spoke about his ‘End High Cost Credit Alliance’. The Alliance will invest in companies and organisations that provide “fair” credit, in an effort to stop consumers needing to borrow from payday lenders and rent-to-own firms.
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