On 2 May 2018, the FCA published a speech by its CEO Andrew Bailey, entitled High-cost credit: what next?
At the beginning of his speech Mr Bailey explains that the FCA’s current focus is on overdrafts, rent-to-own, home collected credit and catalogue credit because of their particular risks to consumers.
In terms of the FCA’s assessment of high-cost credit Mr Bailey highlights four basic principles that the regulator uses to help set its priorities. These are:
- the cost of credit. The FCA did establish a measure for payday loans which linked the cost of interest and charges to the amount borrowed. However, that measure was based on the particular features of the payday loan market and therefore the relevance of such an approach needs to be treated with care. Mr Bailey states that this approach applies most easily to fixed-term loans;
- for revolving credit the FCA’s focus has tended to be on whether customers are frequently in long-term persistent debt;
- the complexity of the product and sales practices, how difficult they are to understand and whether there are notable behavioural biases; and
- the proper assessment of affordability by lenders.
Mr Bailey adds that when thinking about the high-cost credit market, the FCA also adopts two other broad principles to assess whether regulation meets the public interest. First, credit can provide a socially valuable function for people although the payday cap has demonstrated that there are some consumers for whom economic welfare improves if they do not have access to credit. Second, the FCA takes great care to consider what a market working well could look like for the majority of users and what alternatives to high-cost credit could be, rather than simply clamping down on the immediate harm presenting itself without regard to intended consequences.
When concluding his speech Mr Bailey notes that he is “aware that some stakeholders have called for us to introduce price capping in other areas of the high-cost credit world, and overdrafts.” He adds that “we are examining a range of potential approaches to address the harm we see to consumers using these products, and I expect to set out our views in the next month.”