In July 2017, the FCA published Feedback Statement 17/2: High cost credit and review of the high-cost short-term credit price cap, setting out its response to the Call for Input issued in November 2016 and identifying key areas of concerns for consumers. Our blog is here.
The FCA has now published an update on its high-cost credit review, which updates on the progress it has made and the further work it is undertaking. The FCA covers the specific products that it has identified as areas of concern. These are arranged and unarranged overdrafts, rent-to-own products, home-collected credit and catalogue credit.
Key messages in the update include:
- the FCA remains concerned about the high fees and charges for unarranged overdrafts, especially when compared to the relatively small amounts lent. The data collected by the FCA shows that the proportion of revenues for firms from unarranged overdrafts is significantly higher when compared to the amount lent. Alongside its Strategic Review of Retail Banking Business Models, the FCA will also report on its review of the effectiveness of personal current account providers’ monthly maximum charges. In relation to arranged and unarranged overdrafts, the FCA will set out conclusions from its analysis of potential consumer harm in May 2018 and the nature for any remedies that it considers might be warranted in the line with that analysis. Any proposals the FCA will consult on, will be published later in 2018;
- the FCA has concerns about the cost of using rent-to-own services, particularly when add-on products are included. The FCA is gathering further evidence on prices and firms’ policies including add-ons such as insurance and warranties, which have a substantial effect on the overall amounts consumers pay. The FCA is particularly concerned about the impact of these costs on consumers’ finances and that consumers do not consider the costs or value of these products before buying them;
- on home-collected credit, the FCA is focussing on repeat borrowing and refinancing, including where consumers take out additional borrowing with the outstanding amount from the previous loan incorporated into the new loan. The FCA is concerned that when customers refinance their loans in this way, it may result in them paying significantly more interest on the amounts originally borrowed than they would had they maintained separate loans;
- the FCA has concerns over the complexity of catalogue products, including their charging structure and repayment options and choice of architecture and is gathering more evidence to understand consumer use of these products and their impact. The FCA will publish a substantive update in May 2018 that will set out its analysis and assessment of harm from high-cost credit products, as well as consult on changes it may propose to improve the operation of these markets, in particular to promote competition for and to protect consumers of these products; and
- the FCA has identified some key issues that act as barriers to the expansion of alternatives to high-cost credit. To address the issues in this area, the FCA will: (i) encourage innovation through the regulatory sandbox; (ii) engage with investors and the banking industry to understand their appetite for and concerns about investment. The FCA will also discuss with the government whether there are mechanisms for de-risking or incentivising investment which could support sustainable growth in alternative credit; (iii) discuss with potential providers new ideas and innovative business models that could expand responsible lending options available to consumers beyond those currently available; and (iv) explore how credit data services can better serve the interests of high-risk consumers and the scope for enhancing the sources and range of credit rating agency data to assist firms in creditworthiness assessments.
The FCA will publish a substantive update in May 2018 that will set out its analysis and assessment of harm from high-cost credit products, as well as consult on changes it may propose to improve the operation of these markets, in particular to promote competition for and to protect consumers of these products. This will include measures to promote competition and consumer engagement following the CMA’s retail banking investigation and details on the actions the FCA has taken to increase the availability of alternatives to high-cost credit.
View FCA update on high-cost credit review, 31 January 2018
