High cost of credit a ‘key risk’ says Citizens Advice

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As Bank of England figures show continued expansion in consumer credit, Citizen’s Advice say that high cost credit remains a key threat for borrowers.

The Bank of England’s latest money and credit statistics show consumer credit increased by 10.3% in the year to May, to £199.7bn.

Citizens Advice chief executive, Gillian Guy, said: “Problems with poor credit checks in the high cost credit market are trapping people with loans they can’t afford. We’ve helped people with over 30,000 high cost credit problems in the last year, including borrowers who’ve been given expensive rent-to-own or doorstep loan agreements despite having very little income.”

The Financial Conduct Authority (FCA) is currently undertaking a review into high cost credit, having clamped down on payday loans earlier this year. The review set limits on the interest charged and said overall repayments could not exceed the term of the loan. The scope of the investigation includes overdraft costs. Consumers have complained that unauthorised overdraft costs may in certain circumstances exceed the cost of a payday loan.

Guy added: “High cost credit lenders must act responsibly to prevent people getting caught in cycles of debt. Turning the FCA’s current guidance on affordability checks into rules would ensure lenders must carry out thorough checks on borrowers. It would also give the regulator more power to penalise high cost credit lenders who fail to do this.”

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