The FCA has published a Call for Input on high-cost credit, including a review of the high-cost short-term credit (HCSTC) price cap.
The FCA is looking for evidence and feedback in the following areas:
- high-cost credit products. The main types of high-cost credit are HCSTC (including payday loans), home-collected credit, catalogue credit, some rent-to-own, pawn-broking, guarantor and logbook loans. Other credit products – such as motor finance, credit cards and overdrafts – may be high-cost, particularly for less creditworthy customers or depending on how they are used. The FCA will look across high-cost products as a whole to build a full picture of how they are used, whether they cause detriment and, if so, to which consumers. Depending on the evidence gathered, the FCA may publish proposals for consultation in 2017;
- The FCA notes the Competition and Markets Authority’s (CMA) August 2016 final report on its retail banking market investigation which identified a number of competition issues relating to overdrafts and proposed remedies, some of which included recommendations to the FCA. The FCA also notes that the CMA’s competition remedies will take time to change firm and consumer behaviour, especially for unarranged overdrafts which are used intermittently. As such the FCA has decided to look in more detail at overdrafts and will do so from a consumer protection, as well as a competition, perspective. In particular, as running-account credit, overdrafts may also, like credit cards, lead some consumers to use them inappropriately for longer-term borrowing. The ability to go into an unarranged overdraft raises other issues, including the nature and level of charges and potential lack of transparency. The FCA wishes to collect more data and evidence to assess the extent, nature and causes of detriment;
- the HCSTC price cap. The price cap came into force on 2 January 2015 and the FCA is committed to reviewing the cap two years after its implementation, in the first half of 2017. Ahead of this review the FCA wishes to assess whether there is evidence that suggests that it should consider changing the price cap. At this stage, this is not a repeat of the process the FCA went through for setting the structure and level of the cap. The FCA will decide, in light of the evidence, whether it will start further work in the second half of 2017 to consider restructuring and/or recalibrating the cap and develop proposals for consultation; and
- repeat and multiple HCSTC. The data the FCA has already collected does not show a clear detriment from repeat and multiple borrowing. The number of individuals who borrow repeatedly or hold multiple loans at the same time has significantly decreased and there is no clear relationship of consumers who repeatedly borrow always ending up in arrears. However, the FCA states that it intends to keep monitoring this aspect of the HCSTS market and will look at the data from regulatory returns to see whether the trends observed from January 2014 to June 2015 have continued or changed. The FCA will also continue to monitor progress in relation to real-time data sharing, and will be separately consulting on proposed changes to its rules on creditworthiness, including affordability.
The deadline for comments to the Call for Input is 15 February 2017.
View FCA Call for Input on high-cost credit, 29 November 2016