The FCA reveals new agenda on consumer credit
The Financial Conduct Authority (FCA) has set out an agenda for action on consumer credit.
The agenda, which includes retaining the payday loan price cap and tackling issues in the rent-to-own, home and catalogue credit sectors, has been set out as part of several announcements on consumer credit, such as the findings from the regulator’s review of high-cost credit.
The review found that 760,000 borrowers in the high-cost short-term credit sector are saving a total of £150m per year; firms are much less likely to lend to customers who cannot afford to repay, and debt charities are seeing far fewer clients with debt problems linked to this type of credit.
The FCA has therefore decided to retain the payday loan price cap and to review it again in 2020.
The review also established what the FCA called “clear concerns” with other forms of high-cost credit. In particular, the FCA believes fundamental changes in the way unarranged overdrafts are provided may be necessary. It added that charges for unarranged overdrafts are often high after taking into account the risks to lenders, and can be complex and thus hard for consumers to understand.
Andrew Bailey, chief executive of the FCA, said: “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 FCA also identified particular concerns in the rent-to-own, home-collected credit and catalogue credit sectors. While there are similarities between high-cost credit markets and products, there are also significant differences in how they work and how people use them.
The FCA is developing tailored solutions to these issues, and will consult on action to address these concerns in spring 2018.
Alongside the review, the regulator is publishing proposals to clarify its rules on creditworthiness and affordability. The FCA said most credit firms understand the FCA’s rules regarding checks on prospective customers’ creditworthiness, including whether they can afford consumer credit products. However, there is some uncertainty in parts of the market, so the FCA is proposing changes to clarify its expectations.
The FCA has also published more detail on its work on motor finance, setting out the issues that it is considering and the steps it is taking to develop its understanding of the market. The FCA will publish an update on this work in the first quarter of 2018.