The Financial Conduct Authority (FCA) has promised to take action on areas of the consumer credit market that are causing concern, such as unarranged overdrafts, rent-to-own, home-collected credit and catalogue credit.
The regulator says it is working on a consultation paper, which will be published in spring 2018, and which will propose new requirements for firms operating in these areas. The FCA chief executive warned that “maintaining the status quo is not an option.”
Regarding overdrafts, it warned that unarranged overdraft charges can often be very high, and complex in nature. It added that these charges are also repeatedly incurred by a small number of customers, suggesting both that lenders are failing to identify and manage vulnerable customers, and that customers may be becoming trapped in a debt cycle.
The FCA said however that it believed its regulatory efforts had greatly improved customer outcomes in the high cost short-term lending sector. It says that, as a result of its effective supervision of the market:
• 760,000 borrowers are saving a total of £150 million per year
• Firms are now “much less likely to lend to customers who cannot afford to repay”
• Debt charities have seen a sharp drop in the numbers of people contacting them with concerns caused by these types of loans
As a result, the FCA says that the existing price caps for payday loans and other forms of high cost short-term credit will remain unchanged until at least 2020. This means that any speculation that the caps would be raised has proved to be unfounded. One firm, Quick Loans, even announced it was returning to lending recently, confidently predicting that the cap would be raised significantly.
So, for the next three years at least, payday lenders and similar firms will continue to be prevented from charging more than 0.8% daily interest, or more than £15 in default fees. It also remains the case that no loan should ever be rolled over more than twice, and that no borrower should ever be asked to pay more in interest, fees and charges than the amount of their original loan.
The FCA also highlighted that it is carrying out a range of activities in the motor finance sector, looking at whether firms are lending responsibly, providing clear information to customers and managing conflicts of interest effectively. Some commentators have warned that Personal Contract Plans, often used to fund purchases of vehicles, could be “the new PPI”, with fears that large-scale mis-selling has taken place.
Andrew Bailey, Chief Executive of the FCA, said:
“High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers. We are pleased to see clear evidence of improvement in the payday lending market after a period when firms’ treatment of customers and their business models were often unacceptable.
“However, there is more that we can do, and this review is about identifying the areas where consumers may be suffering harm so that we can focus our efforts accordingly.
“In particular, the nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option. We are now working to resolve these issues while preserving the parts of the market that consumers find useful.”
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.