FCA to examine issues around high-cost credit

Firms offering high-cost loans and credit are being put under the spotlight by the City regulator, including payday lenders, pawnbrokers, those offering rent-to-own credit on household goods and companies offering catalogue credit.

The Financial Conduct Authority (FCA) is seeking evidence and feedback to help its work on high-cost credit, including a review of a price cap that was put on payday loans in 2015.

It wants to hear views on whether some consumer protections relating to high-cost short-term credit should be applied more widely, and if so, what the impact would be to the cost of and the access to credit.

It said credit cards, overdrafts and motor finance may also be high cost, depending on how these services are used.

Doorstep lenders are also included in the research, as are firms offering logbook loans - where someone's car may be put up as security for a loan.

The FCA wants to build a full picture of how high-cost products are used, whether they cause harm, and if so, which customers are affected.

It will also look at the impact on customers when they take out several high-cost loans.

The FCA said in many cases, consumers are likely to be using several high-cost products, or switching between them because of difficulties in accessing credit, or for emergency borrowing or because they are trying to juggle repayment dates.

The Competition and Markets Authority (CMA) previously found poor price transparency surrounding overdrafts, particularly when a customer slips into an unarranged overdraft.

Andrew Bailey, chief executive of the FCA, said: "As an organisation, we have already taken many steps to address the risk of consumer harm by putting in place new rules for high-cost short-term credit firms and taking action against non-compliance across all credit markets.

"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."

Mike O'Connor, chief executive of StepChange Debt Charity, said the cost and design of high-cost credit products can trap people in cycles of repeat borrowing that deepen their financial difficulties.

He said: "Every day our advisers see people who are damaged by these products.

"The review of payday loans is timely, and we think further FCA intervention is necessary to address the problems that still exist in the market, including lenders moving from traditional payday loans to instalment loans, the continued problems caused by people accessing multiple loans, and the poor treatment of customers."

Mr O'Connor said the high-cost short-term credit market sells to people who often lack other options, and better alternatives should be made available.

He continued: "I welcome the fact that the FCA has now acknowledged that overdrafts can act as a form of high-cost credit, and this review gives the FCA an opportunity to examine the case for a cap on unarranged overdraft fees."

Citizens Advice chief executive Gillian Guy said: "Payday loan problems have fallen, but other high-cost credit products are causing problems for thousands of borrowers.

"We've been helping people who have got into financial problems after taking out a rent-to-own agreement and logbook or guarantor loan."

The FCA is asking for comments on its call for input by February 15 2017.