The FCA high cost credit review

After the review into the payday loans industry, the Financial Conduct Authority has now announced that it is to review a wide range of other so called high-cost credit from overdrafts to logbook loans.  Since 2015 the FCA have imposed a number of restrictions on payday lenders, and the way that they do business.  Customers are now prevented from paying back any more than twice the value of the original amount borrowed and cannot continually roll loans over.

However, the FCA are now assessing whether or not such restrictions has pushed customers towards other forms of credit such as loan sharks. The review findings and recommendations will be published in Summer 2017 and could lead to another major shake-up of the consumer credit industry.

Approximately 400,000 people use high-cost credit deals from retailers to buy goods, appliances, toys and furniture. This figure inevitably rises as Christmas approaches.  After the initial deal or special offer period has ended, customers can end up paying more than twice the original price, as the loan may be spread out over a longer number of years.  Chief Executive of the FCA Andrew Bailey said: “This is a significant moment for our approach to consumer credit regulation as we continue to ensure that this market works well for consumers.

“We have come up to the point of reviewing the cap on payday lending, making now the right time to take a broader view of the issues around high-cost credit, including unarranged overdrafts, and to consider whether our requirements remain appropriate.”

The FCA will gather evidence under the ‘call for inputs’ campaign, and it will ultimately decide if high-cost loans are causing detriment to customers. If it is deemed that such loans are, then the FCA could take action and impose restrictions as it has done in the payday loans sector. In particular the FCA is interested in pawn broking, doorstep lending, logbook loans and catalogue credit. Overdrafts will also come under scrutiny, as this as a loan facility which on the face of it seems to be high cost. Unsecured loans are heavily regulated already and this area of consumer credit seems to work well, even those who cannot necessarily obtain the best rates, still have options.

The regulator is also trying to assess the implications of its restrictions within the payday sector. The high-cost short term loans are now capped at 0.8% per day, and any default charges must be no higher than £15. “The FCA is also keen to see if there is any evidence of consumers turning to illegal money lenders directly as a result of being excluded from high-cost credit because of the price cap,” the regulator said.