Sets out agenda and priorities for consumer credit

Sets out agenda and priorities for consumer credit

The UK’s Financial Conduct Authority (FCA) has published the outcome of its review into high-cost credit, which includes its assessment of the effectiveness of the payday loan price cap.

With a generous amount of back-slapping, the review provides “clear evidence that FCA regulation of high-cost short-term credit (often known as ‘payday lending’) has delivered substantial benefits to consumers”.

Andrew Bailey, chief executive of the FCA, says high-cost credit products remain a “key focus for us because of the risks they pose to potentially vulnerable customers” – and that “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”.

The review found that 760,000 borrowers in this market are saving a total of £150 million per year; firms are much less likely to lend to customers who cannot afford to repay and debt charities; and these firms are seeing far fewer clients with debt problems linked to high-cost short-term credit.

The FCA has therefore decided to leave the existing payday loan price cap in place, and to review it again in 2020.

However, the review has also established “clear concerns” with other forms of high-cost credit.

The FCA believes that fundamental changes in the way that unarranged overdrafts are provided may be necessary. 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.

It also identified 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, according to the regulator. It is developing “tailored solutions” to these issues, and will consult about this in spring 2018.

Alongside the review, the FCA is publishing proposals to clarify its rules on creditworthiness and affordability. 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 a number of changes to clarify its expectations.

The FCA has been vocal on these kinds of issues before. In April, it called for an end to consumer vulnerability and more access to financial services; and proposed new rules to help customers who are in persistent debt.

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