FCA set to reform high-cost lending - Debt
- by Patty Hardy
- in Business
- — Jun 3, 2018
"This sector may help consumers who can't afford to spread the cost of a purchase on a short-term credit card and therefore opt for a rent-to-own arrangement instead, but ultimately these customers can be ripped off by paying back well over the value of the item". It feels the "need to intervene to protect financially vulnerable customers".
Campaigners had called for a cap on the interest and charges faced by those using high-cost credit, including overdrafts.
Financial Conduct Authority Chief Executive Andrew Bailey said: "High-cost credit is used by over three million consumers in the United Kingdom, some of who are the most vulnerable in society".
Rent-to-own contracts, which more and more consumers are using for household appliances, will also be subject to an intervention by the FCA, which believes the problem could be serious enough to warrant a price cap.
'The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.
The majority of unarranged overdraft charges were paid by only 1.5% of customers, who paid about £450 a year in fees and charges, the FCA said.
He said: "Just last week we revealed that unarranged overdraft charges can still be more than seven times more expensive than a payday loan. leabing customers affected by this unfair practice trapped in debt". There's also scope for more radical options such as banning fixed fees.
However, different banks have varying approaches to overdrafts, meaning a patchwork of charges in different circumstances and no way of identifying a single worst offender. It is now asking for input on the proposed changes.
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The FCA is putting forward some immediate proposals today for overdrafts that it believes will save customers up to £140 million a year.
Alongside the measures for rent-to-own, the FCA said it would introduce rules preventing home-collected credit firms from offering new loans or refinancing during home visits without the customer specifically requesting this.
The FCA is announcing a package of reforms in the home-collected credit sector.
The FCA says it will gather more evidence and analysis before any formal decisions are made.
We consider that our historical technological developments and future enhancements, already in scope, alongside our conservative growth targets put us in good stead following the FCA announcement today.
The CCTA - a trade body representing over 300 lenders in the consumer credit industry - does, however, "welcome" the changes. The FCA will carry out a "detailed assessment" of the impact of a cap and introduce any changes in April 2019.
If appropriate, these options will be consulted on later this year to coincide with the wider strategic review into retail banking. The company's shares were down slightly in London trading on Thursday.
