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Financial regulator remains concerned over high-cost credit markets

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Written by: Paloma Kubiak
31/01/2018
The Financial Conduct Authority said it is still concerned about the high-cost credit sector, but added any intervention would need to balance consumers’ need for credit against the risks posed to borrowers.

In July last year, the FCA said it was concerned over unarranged overdrafts, rent-to-own, home-collected credit and the catalogue credit market.

Today, it has reinforced this view. After looking at the transaction history of 1.5 million current accounts, it found borrowers often pay more in fees and charges for unarranged overdrafts, compared with the relatively small amount borrowed.

Over half of the total charges paid on unarranged overdrafts were applied to just 2% of accounts.

On rent-to-own goods and services, the FCA said it has seen improvements in the sector but it remains cautious on the cost of using such services, particularly when add-on products are included.

In so-called home-collected credit options, consumers take on additional borrowing and the amount outstanding from the previous loan is included in the new loan. The FCA said it was concerned many will be left paying significantly more interest on the amounts originally borrowed than if they had taken out two separate loans.

The complexity of charging on catalogue credit remains an area of interest for the FCA as many people don’t understand the key features. As a result, the regulator is gathering further evidence on firms’ policies, including the information provided to customers.

The regulator added that it is working with the government and social landlords to ensure they offer alternatives to high-cost credit. Such measures include providing white goods when tenants move into a property.

Christopher Woolard, executive director of strategy and competition, said: “High-cost credit products remain a key focus. We have already taken significant steps to address the risk they pose to potentially vulnerable consumers by putting in place new rules for high-cost short-term credit firms and taking supervisory and enforcement action against non-compliance across all credit markets.

“This review and the analysis we have conducted so far give an emerging picture of the need to intervene in some parts of the market. At the same time, we can also see the social utility of these credit products. We need to address both the choice and range available and how this market can work better for consumers.”

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