The Analysis Editor’s Letter


Unintended consequences of regulation can hit home hard


Stephen Kiely Editor, CCRMagazine stephen@ccrmagazine.co.uk


As the Financial Conduct Authority (FCA) conducts its review of the price cap, over 600,000 consumers of short-term loans may no longer have access to credit, according to new evidence from the Consumer Finance Association (CFA) that was released last month. Research, conducted with assistance from


economic analysts, Oxera, found that, without access to a regulated form of finance, many consumers are unable to take action to manage their cashflow or cover emergency financial costs. They could end up turning to more expen-


sive forms of credit or using an overdraft facility, which could cost up to £180 in fees, according to a recent report from consumer group Which?. This compares to figures prepared for the


CFA by the Social Market Foundation, which found that 92% of borrowers were not charged any additional fees, beyond the contractual interest. Charged fees have fallen from £45 in 2013 to £24 in 2017. Analysts had expected that the changes,


introduced by the Financial Conduct Authority, would reduce the access to high- cost short-term credit for around 250,000 people a year. Instead more than twice as many people are excluded annually (600,000), according to the research. Russell Hamblin-Boone, chief executive of


around 250,000 people a year. Instead more than twice as many people are excluded annually (600,000), according to the research


Analysts had expected that the changes, introduced by the Financial Conduct Authority, would reduce the access to high-cost short-term credit


for


the CFA, said: “Important questions remain about the impact of regulatory intervention on the availability of credit. We estimate that around 600,000 people annually no longer have access to credit, which is more than double those expected to be excluded by the changes. In order for the demand from customers to be met by responsible lenders, we need fair and equitable regulation across all credit services, especially robust affordability checks.”


April 2017 Research shows that, for consumers


eligible for credit, the cost of borrowing is down by £36 for a 30-day loan. Overall the number of loans approved has dropped by 42% since 2013 and over half of consumers say they find it harder to access credit since the price cap was introduced. The CFA has called on the regulator


to ensure access to credit is not restricted by the changes and for fair and equitable treatment of all consumer-credit providers in the market. A YouGov survey commissioned by the


CFA has found that the typical customer using high-cost short-term credit is male, earning between £20,000 and £25,000, aged between 25 and 39, and is in full- time employment. The Financial Conduct Authority is


currently carrying out a review of the high- cost credit market and several parties have already submitted evidence. It is always incumbent on any regulator


carrying out such work to remember that, in order to have a responsible, properly- regulated industry sector that works for its customers, you first need to have a sector where the best businesses can make a living for themselves. The goal – even the unwitting goal –


of regulation should not be the destruction of the regulated sector. Indeed, it should be the hallmark of appropriate regulation that it provides a fair and level playing field,


where businesses and responsible professionals, who want to do the right thing, are able to thrive. This is true across all sectors and particularly of the credit


industry, which is so important to the wider economy, as well as to our society as a whole. Enjoy the magazine!


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