You are here: Home - Credit Cards & Loans - News -

Careful who you sell to, lenders warned

Written by:
The regulator has promised a clamp-down on finance companies ‘selling products to customers who can’t afford to repay them’.

In a speech to the Credit Summit 2018, Jonathan Davidson, executive director of supervision – retail and authorisations at the Financial Conduct Authority, said: “We have found that some customers were well-nigh perpetually in debt. We found more than three million credit cardholders with a total of four million accounts in ‘persistent debt’ – paying more in interest and charges than they have repaid of their borrowing over an 18 month period.”

He added that the FCA had introduced significant new rules, meaning both firms and customers are encouraged to avoid credit card debt becoming persistent in the first place, and customers who cannot afford to repay more quickly are given help. The regulator is expecting to see customer savings of between £310m and £1.3bn a year as a result of the new rules.

Davidson also said the regulator expects lenders to do more than backward-looking credit checks. “Will the customer be able to repay without causing them wider financial difficulties?” he said.

The FCA is also paying attention to the motor finance market. Davidson pointed out that the number of motor finance agreements for new and used cars has grown from around 1.2m in 2008 to around 2.3m in 2017. While most of this growth has been to lower credit risk consumers, arrears and default rates are rising.

It is also concerned about the level of debt among young people. He said: “Among 25-34 year olds, 19% have no savings whatsoever, and a further 30% have less than £1,000 saved to use on a rainy day. Indeed, 36% had been overdrawn in the last 12 months.”

Higher levels of self-employment, and potentially higher interest rates are also adding to the financial vulnerability of some groups.

However, Davidson added that the sector has not reached levels of debt where there is systemic risk, or where lenders are vulnerable to going bust.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape, and moving your cash savings to a higher paying deal is a good plac...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week