Has the regulator pulled its punches?
I have written a lot about the High Cost Credit Review in this column, and for good reason.
Together with the forthcoming new rules on creditworthiness and affordability, the High Cost Credit Review will have a major impact on the alternative credit industry for years to come.
Readers will already be familiar with the headlines, but it would be remiss to let the Financial Conduct Authority’s (FCA) latest instalment pass without making some observations about what it says about the politics of credit and where the regulatory juggernaut will be heading next.
There are five main observations to make.
- First, credit remains the most politicised of industries. There are others, of course — energy, defence and healthcare markets have their share of political turbulence — but the business of meeting the demand for credit from consumers across the socio-economic spectrum is right up there.
Consumer credit is where economic policy and social policy collide head-on: economists insists that risk equals cost; for social policy makers the idea of ‘the poor paying more’ is abhorrent. This guarantees close scrutiny of credit markets from politicians for whom ‘social justice’ is the motivating factor; and understandably so.
The politics also extends beyond Parliament. Debt galvanises a wide coalition of charities and campaign groups representing a range of concerns from poverty to public health and mental illness. Their efforts received a major boost from actor-turned-activist Michael Sheen whose involvement electrified the latter stages of the debate.
- Second observation: the report was a lot less severe than anticipated. A number of factors had combined to raise expectations of some very tough measures in the run up to it, including the vociferous lobbying described above and the FCA’s own rhetoric in a series of high-profile speeches by Chief Executive Andrew Bailey and others.
There was a further up-tick in the FCA’s rhetoric on the eve the announcement. Director of Strategy Chris Woolard sent out a tough message from a number of campaign platforms, even being described by one host as “our secret weapon inside the FCA”. In the event, the talk was tougher than the substance. The FCA has clearly learned a trick or two from its Treasury cousins on how to manage the message around sensitive announcements.
- Third, this is far from the end of the matter. The Report is merely to latest staging post in an on-going review. Disappointed campaigners wasted little time before launching a new campaign, End the Debt Trap, which is calling for Parliament to intervene and force the FCA to cap all forms of credit.
Other campaigners gave us a glimpse of where they will take the battle next. ‘I hope FOS is ready for a swathe of complaints about door to door lenders’, warned the Centre for Responsible Credit on Twitter. Both it and sites like DebtCamel will be instrumental in driving complaints to the Ombudsman, one would imagine. More ominously, Stella Creasy MP described the FCA’s approach as ‘whack-a-mole’ regulation and vowed to continue the fight in Parliament.
- Fourth observation: in spite of all the sound and fury surrounding the High Cost Credit review, it is the affordability review that is likely to have the greater impact.
This is the next major FCA announcement on the horizon. Industry observers expect the new rules to fall most heavily on non-prime businesses. The cost of extra checks will be disproportionate to the small amounts they lend and could cause many SME businesses to call it a day.
It will be important for the industry to flag the dangers of the affordability review in the weeks to come. And, in fairness to it, the FCA has shown that it is mindful of the need to preserve access. It resisted campaigners’ calls for blanket caps in the high-cost credit review; and chief executive Andrew Bailey was similarly clear in front of the Treasury Committee on 13 June: “Consumers do require access to credit, that is important”, he said, “it is not a good thing for this group not to have access to credit”.
- Fifth and final observation: the debate is cyclical and never really ends. Witness the latest comments from campaigners about the payday cap: universal acclaim about its success is giving way to recognition of its limitations. Stella Creasy now accuses credit companies of having ‘shape-shifted’ to get around it.
Enjoy a few weeks of relative calm because the calls for caps will be ringing out again soon enough.