On 31 May 2018, the FCA announced proposals designed to protect consumers who use overdrafts and high-cost credit. The proposals are contained in:
- Consultation Paper 18/12: High-cost Credit Review: Consultation on rent-to-own, home-collected credit, catalogue credit and store cards, and alternatives to high-cost credit, discussion on rent-to-own pricing (CP18/12); and
- Consultation Paper 18/13: High-cost Credit Review: Overdrafts (CP18/13).
In CP18/12 the FCA sets out proposals for new rules and guidance to reduce consumer harm on rent-to-own (RTO), home-collected credit, catalogue credit and store cards. The FCA also explains its plans for further work assessing potential rules to introduce a price cap on RTO goods, and the level and structure of a possible cap.
Given the issues it has identified with RTO pricing, the FCA believes that the case is made, in principle, to consider the introduction of a price cap. The FCA believes that the costs of RTO and the financial vulnerability of the consumers who use it provide sufficient grounds for it to undertake the significant additional analysis it needs to reach a final conclusion on consulting on the structure, level and rules for a price-cap. In addition, the FCA is consulting on new rules to ban the sale of extended warranties alongside RTO agreements at point of sale. The FCA believes that extended warranties are of limited value to consumers when similar cover is provided by standard manufacturers’ warranties.
In terms of home-collected credit the FCA is proposing new rules to ensure firms are treating customers fairly when they borrow again. The FCA is also consulting on:
- new rules to ensure firms are treating customers fairly when they borrow again;
- guidance setting out its view on the interpretation of the ban on ‘canvassing’ cash loans off trade premises in the Consumer Credit Act 1974; and
- a new rule that means firms will have to provide consumers the comparative costs of taking out another loan on top of an existing loam so they can compare with the costs of refinancing.
In terms of catalogue credit and store cards the FCA proposals include new rules to:
- require catalogue credit and store card firms which offer ‘buy now pay later’ and similar offers to provide consumers with clearer explanations of the implications and costs of not paying back within the offer period;
- require these firms to remind their customers when the offer period is about to come to an end to prompt repayment;
- ensure catalogue credit firms do not give credit limit increases to customers in financial difficulties or increase the interest rate on their account;
- require firms to use the information they hold to identify customers at risk of financial difficulty and take appropriate steps. The FCA also proposes to apply these rules to store cards; and
- require firms to offer customers in persistent debt help to repay it more quickly.
The deadline for comments on CP18/12 is 13 July 2018.
To improve consumer engagement and awareness of overdrafts, the FCA proposes in CP18/13 to introduce new rules to:
- require firms to provide online or in-app tools that assess eligibility for overdrafts;
- improve the visibility and content of key information about overdrafts – in particular when a personal current account is opened;
- require firms to send consumers overdraft alerts to address unexpected overdraft use. These alerts could be text messages or push notification alerts warning consumers of overdraft use that may result in charges.
The FCA also sets out for discussion in CP18/13 measures that:
- simplify overdraft pricing structures (including banning all fixed overdraft fees, other than fees for refusing a payment due to lack of funds);
- provide for a potential backstop price cap for overdraft charges; and
- provide guidance around exactly which costs firms should consider when ensuring refused payment fees reasonably reflect the actual costs.
The FCA also discusses proposed measures to address repeat use of overdrafts. Such measures include:
- an explicit obligation on firms to have adequate systems and policies around their provision of overdrafts that allow them to: (i) assess whether customers are in, or at risk of, financial difficulties; (ii) take appropriate action; and (iii) deal with customers showing signs of actual or possible financial difficulties;
- interventions by firms at prescribed intervals. For example a prompt to a customer to consider changing their behaviour.
The deadline for comments on CP18/13 is 31 August 2018.