Consumer groups say crackdown on high-cost credit still failing customers

Consumer groups have reacted with disappointment to a crackdown on high-cost credit by Britain's financial watchdog, saying it fails to address "unfair" unarranged overdraft charges or extend to a cap on the doorstep lending market.

Following a wide-ranging review into the sector, the Financial Conduct Authority (FCA) is proposing reforms to bank overdraft charges, rent-to-own operators, doorstep lending and catalogue credit and store cards.

The watchdog is considering a number of measures to make it easier for customers to manage their accounts, including mobile alerts warning of potential overdraft charges and stopping the inclusion of overdrafts in the term "available funds".

It will also consider more radical options to ban fixed fees and end the distinctions around unarranged overdraft prices.

However, Which? Money spokesman Gareth Shaw said it was "wrong" that the regulator was not taking action on unarranged overdraft fees.

He said: "Just last week we revealed that unarranged overdraft charges can still be more than seven times more expensive than a payday loan - it's wrong that the regulator continues to delay taking action, leaving consumers affected by this unfair practice trapped in debt.

"As the FCA continues to drag its heels, the Government must urgently intervene to ensure unarranged overdraft charges are brought into line with arranged overdrafts, to finally help all those struggling from these rip-off fees."

The FCA is also considering imposing a cap on rent-to-own merchants after finding that costs for 400,000 customers who rely on the sector can be exceptionally high.

In the home-collected credit market, the watchdog is introducing new requirements to raise standards in "disclosure and sales practices".

They will prevent home-collected credit firms from offering new loans or refinancing during home visits without the customer "specifically requesting this".

Citizens Advice chief executive Gillian Guy said the FCA's willingness to cap rent-to-own credit was good news for the thousands of people who relied on it to cover essential items but made it "even more disappointing" that it had not extended these measures to the doorstep lending market.

She said: "The FCA should reconsider their decision not to consult on a cap in this market. If they fail to act to protect these consumers, the ball will be firmly in the Government's court. It must show it is genuine in its commitment to making markets work for everyone, and put pressure on the regulator or legislate to give people the protection they need."

FCA chief executive Andrew Bailey said: "High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society.

"Today we have proposed a significant package of reforms to ensure they are better protected, including the possibility of a cap on rent-to-own lending.

"The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer."

Mr Bailey added: "Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping into an overdraft in the first place.

"However, we believe more fundamental change is needed in the way banks charge customers for overdrafts. Given the size of the market, our work here will be completed as part of our wider review into retail banking."

On catalogue credit and store cards, the FCA will ask firms to "do more" to help customers avoid persistent debt.