The UK’s payday lenders have been subject to a price cap for almost two years now. The regulator, the Financial Conduct Authority (FCA) has now launched a call for input to examine the possibility of extending the concept of price caps to other forms of credit.
The paper published by the regulator in November 2016 is a ‘call for input’ as opposed to a ‘consultation paper’, so specific rule changes are not being proposed. However, the suggestion made in the call for input is that the FCA may be minded to impose some form of price cap on forms of lending such as: home-collected credit, catalogue credit, rent-to-own arrangements, pawn-broking, guarantor loans, logbook loans, motor finance, credit cards and overdrafts. Rent-to-own borrowers can, for example, sometimes end up paying almost twice the amount borrowed in interest and charges.
Responses to the call for input should be submitted by February 15 2017. A consultation on formal proposals may then take place later in 2017.
The FCA also promises to use its competition powers to study the overdrafts market in more detail.
It also says it will conduct a review of the payday loan price cap during the first half of 2017, and consider whether the cap should be changed in any way, and whether the cap has led to an increase in illegal lending. Since January 2015, payday lenders have been unable to impose daily interest rates of more than 0.8%, and have been unable to ask borrowers to repay more in interest and charges than the amount originally borrowed.
The FCA says that, since it became the consumer credit regulator in April 2014, arrears rates are down by a quarter, and the number of people taking out a payday loan has fallen by 800,000 over an 18-month period. It also claims there has been a 20% fall in loan approval rates from the start of 2014 to the middle of 2015.
Andrew Bailey, Chief Executive of the FCA, said:
“This is a significant moment for our approach to consumer credit regulation as we continue to ensure that this market works well for consumers.
“As an organisation, we have already taken many steps to address the risk of consumer harm by putting in place new rules for high-cost short-term credit firms and taking action against non-compliance across all credit markets.
“We have come up to the point of reviewing the cap on payday lending, making now the right time to take a broader view of the issues around high-cost credit, including unarranged overdrafts, and to consider whether our requirements remain appropriate.”
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