Following a Feedback Statement in which FCA identified key areas of concern in the high-cost credit sector, it has published an update on the work undertaken since the July 2017 publication. This presents an emerging picture for intervention in some markets, but equally a limitation on what can be achieved through traditional regulatory intervention.
The update relates to four key areas of concern identified in the Feedback Statement:
- Overdrafts – although arranged overdrafts are a larger source of revenue for firms than unarranged overdrafts, the proportion of revenues from unarranged overdrafts is significantly higher when compared to the amounts lent, and there seems no clear relationship between amounts borrowed and what is charged. FCa is also concerned at the numbers of customers who use unarranged overdrafts persistently and the charges they pay. FCA’s analysis of overdrafts will feed into its Strategic Review of Retail Banking Business Models.
- Rent-to-own – supervisory and authorisation work has already significantly reduced the risk of consumer harm, but FCA remains concerned about the cost of using these services, particularly where add-on products are included. It finds these customers are generally vulnerable customers. FCA is considering looking at the limited alternative credit facilities that may be open to these customers, though the use of community development finance institutions and credit unions. It is looking at how it might help to remove some current barriers to alternative credit provision.
- Home-collected credit – FCA has similar concerns to those it has over rent-to-own, but a larger number of customers take home-collected credit. FCA is particularly concerned that repeat borrowing and refinancing may result in significantly higher amounts of interest payable on amounts originally borrowed, and has requested further data on lending patterns and the nature and extent of refinancing.
- Catalogue credit – FCA was concerned that the complexity of charging structures and how consumers were offered repayment options meant that consumers did not understand key features; FCA is now gathering evidence on what information firms provide to consumers and how they are researching consumer use of their products.
FCA emphasised its commitment to support consumer alternatives to high-cost credit, and will also highlight best practice aimed at lowering the demand for high-cost credit. Finally, it is inviting innovators into its Sandbox to advance ideas in the interest of consumers.