The Financial Conduct Authority (FCA) has recently completed its review of the high-cost consumer credit industry and is pleased with its current status.
The FCA took over from The Office of Fair Trading in 2014 as the regulator for consumer credit such as loans and credit cards. One of its main priorities was to provide remedies to the heavily criticised payday lending industry, accused of charging high rates of interest
Following the FCA’s report carried out in July 2017, the research shows that they are happy with the outcome of the measures taken. This has resulted in around 760,000 borrowers saving a total of £150 million per year and companies are now stricter and less likely to lend to those who cannot afford to repay.
Changes implemented by the FCA
The initial change in January 2015 was the introduction of a price cap to limit lenders charging more than 0.8 per cent per day, equal to £24 per £100 borrowed. This intended to reduce the high rates charged by lenders and ensure that a borrower would never repay double what they took out.
Other changes include a cap on default rates at a maximum of £15 and only charged as a one-off. For those brokers or lenders offering short term and high cost credit products, they are required to go through a strict application process to become FCA authorised – which has caused hundreds of unfit companies to leave the industry.
For lenders, the cut in profit margins has led to a more selective criterion, and this has protected those who were previously deemed vulnerable or ineligible.
A spokesman from Uncle Buck says, ‘We have welcomed the new regulation by the FCA. It means that consumers now have access to more affordable rates of interest and only responsible lenders who can offer these products.’
Other industries under the spotlight
In its recent review, the FCA confirmed that it is happy with the regulation of the payday industry and will not need to review the price cap and format until 2020.
One area that is raising a lot of attention is the cost of authorised bank overdrafts, which involves using a credit facility that was not previously verified by your bank.
Depending on the bank or card provider, going into your unauthorised overdraft can cost an individual around £6 per day or £90 per month. Whilst banks have responded with text message alerts and have recently capped the maximum they charge, the FCA state that this is not enough.
Reports showed that many consumers find there is a lack of transparency with the cost of overdrafts and that the most vulnerable in society are relying on them. The industry is currently under review and will be formally updated in Spring 2018, with talks of a one-off fee or much lower price cap to be put in place.
The regulator has also highlighted the high costs, lack of transparency and affordability checks in other industries such as motor finance, rent to own and credit on good bought from catalogues. Each sector will be subject to further review over the next 6 months.