In November 2016, we blogged that the FCA published a Call for Input on high-cost short-term credit (HCSTC), including a review of the HCSTC price cap.
The FCA has now published Feedback Statement 17/2: High-cost credit: Including review of the high-cost short-term credit price cap (FS17/2).
Among other things, FS17/2 notes the following:
- HCSTC price cap – the FCA has decided to maintain the price cap at its current level. A further review will take place in three years’ time. The FCA has found improved outcomes for consumers since setting the price cap. The regulator does not consider that the price cap is too tight. This is because firms are continuing to operate under the cap, and consumers who are declined for HCSTC do not generally appear to be harmed as a result;
- high-cost credit review – the FCA has identified a number of issues which could cause consumer harm. The regulator will investigate these further with the aim of issuing a consultation paper on proposed solutions in Spring 2018. The FCA is particularly concerned about rent-to-own, home-collected credit and catalogue credit, as well as wider concerns about consumers’ long-term indebtedness;
- rent-to-own (RTO) – the FCA will look in more depth at why consumers use RTO to obtain goods and whether more affordable alternatives are available. The FCA will carry out a market-based analysis to understand and where possible address constraints that may currently prevent new entrants or other credit providers from increasing their supply of potentially cheaper credit to this vulnerable consumer group. This will include considering whether this may be of broader application in other high-cost credit areas;
- home-collected credit – the FCA will focus on particular features of the business model which may incentivise consumers’ long-term indebtedness. Where the regulator identifies that this causes harm it will explore options for potential action. Such action could include, for example, introducing restrictions on refinancing and rollovers, imposing time gaps between borrowing or time limits on the total duration of borrowing;
- catalogue credit – the FCA is concerned about the high level of arrears experienced by borrowers. In addition, the FCA has observed high levels of interest charged outside interest-free periods and will look in more depth at the impact on borrowers and the transparency around interest-free periods;
- wider considerations of high-cost credit products – across its high-cost credit work the FCA sees a market where certain products do not work well for a minority of consumers. To this end the FCA will analyse in depth the worsening of high-cost credit consumers’ credit ratings to understand what is causing these deteriorations. The FCA will analyse multiple and repeat use of products and patterns of longer term indebtedness and whether this harms consumers. The FCA will incorporate the insights from this analysis into any regulatory measures it consults on in Spring 2018;
- unarranged overdrafts – the FCA considers that there is a case to consider the fundamental reform of unarranged overdrafts and whether they should have a place in any modern banking market. As part of its overall review of retail banking, the FCA will focus on how it can address concerns about the way unarranged overdrafts operate to ensure that consumers are appropriately protected and that the market functions well for consumers. The FCA ensures that it will coordinate with other related FCA work, particularly on how to improve prompts and alerts to ensure any intervention meets consumers’ needs; and
- arranged overdrafts – the FCA will assess whether and how much consumers suffer harm from persistently using overdrafts and how far firms’ incentives are aligned to ensuring borrowing remains affordable.
The FCA will investigate these issues and where intervention is needed and justified, it aims to consult in Spring 2018 on proposals concerning both overdrafts and other forms of high-cost credit.
View FCA feedback statement on high-cost credit, 31 July 2017