The FCA has today published its policy statement containing the detailed rules for the price cap on high-cost short-term credit (HCSTC).
The FCA has maintained the combined cap which was the subject of consultation. There are three components to the cap: an initial cost cap, a cap on default fees, and total cost cap:
- the interest and fees for any new or rolled over high-cost short-term loan must not exceed 0.8% per day of the amount borrowed’;
- default fees must not exceed £15 (though firms can continue to charge interest during a borrower default); and
- the total cost of the loan must not exceed 100% of the total amount borrowed.
Credit agreements which breach the cap, will be irredeemably unenforceable. However, the FCA has clarified that the borrower will be under a statutory duty to repay principal (once interest and charges have been reimbursed by the lender).
The cap will cover debt collection, debt administration and other ancillary charges, as well as charges for credit broking for a firm in the same group, or where the credit broker shares revenue with the lender.
The price cap will also be relevant to firms who collect debts arising under HCSTC agreements entered into by overseas lenders, under the provisions of the E-Commerce Directive (the ECD). Under the FCA’s new rules, UK-based debt-collectors will be prevented from collecting debts arising under HCSTC agreements entered into by incoming ECD lenders whose charges exceed the price cap.
HM Treasury is expected to lay a draft order before Parliament before the new year, giving the FCA the power to take action against firms who seek to flout its rules, by establishing in another EU member state.
The FCA has signalled that it will review the price cap in the first half of 2017.
View Policy Statement 14/16: Detailed rules for the price cap on high cost short-term credit, 11 November 2014