MALG member the Financial Conduct Authority (FCA) has today published the outcome of its review into high-cost credit, which includes its assessment of the effectiveness of the payday loan price cap.
The financial service industry regulator’s review provides clear evidence that FCA regulation of high-cost short-term credit (often known as ‘payday lending’) has delivered substantial benefits to consumers. The review found that 760,000 borrowers in this market are saving a total of £150m per year, firms are much less likely to lend to customers who cannot afford to repay and debt charities are seeing far fewer clients with debt problems linked to high-cost short-term credit. The FCA has therefore decided to leave the existing payday loan price cap in place, and to review it again in 2020.
However, the review has also established clear concerns with other forms of high-cost credit. In particular, the FCA believes that fundamental changes in the way that unarranged overdrafts are provided may be necessary. Charges for unarranged overdrafts are often high after taking into account the risks to lenders, and can be complex and thus hard for consumers to understand.
The FCA also identified particular concerns in the rent-to-own, home-collected credit and catalogue credit sectors. While there are similarities between high-cost credit markets and products, there are also significant differences in how they work and how people use them. The FCA is developing tailored solutions to these issues, and will consult on action to address these concerns in Spring 2018.
The FCA has also published more detail on its work on motor finance, setting out the issues that it is considering and the steps it is taking to develop its understanding of the market. The FCA will publish an update on this work in the first quarter of 2018.
We have invited a representative from the FCA to deliver a break-out session on high-cost credit at the MALG Conference 2017. View the full programme here.