In Focus Risk
HCST-credit sector: a mix of regulatory approaches
The regulator’s current thinking is for an approach focusing on intervention where required, but also recognising good behaviour
Christopher Woolard Executive director of strategy and competition, Financial Conduct Authority
Our update, last month, followed a Feedback Statement we published in July 2017, which identified key areas of concern with the credit sector including overdrafts, rent-to-own, home-collected credit, and catalogue credit. Work undertaken since July 2017 has
demonstrated an emerging picture of the case for intervention in a number of markets, but also some limitation on what can be achieved purely through traditional regulatory interventions. As well as being prepared to propose new
rules, where we have the evidence that markets are not working well for consumers, we are prepared to look at solutions designed to increase the choice and availability of alternatives to high-cost credit. We will look at the guidance given to
social landlords and others about referring to cheaper sources of credit, and we are also proposing to work with government to highlight examples of best practice around alternative models. We consider that it is important to avoid
negative unintended consequences from taking steps that might restrict the availability of credit to those consumers who are able to repay it affordably. High-cost credit products remain a key
focus for us. We have already taken some 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.
38 The data have shown that, while arranged
We consider that it is important to avoid negative unintended consequences from taking steps that might restrict the availability of credit to those consumers who are able to repay it affordably
This review, and the analysis we have
conducted so far, gives 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.
Overdrafts The FCA remains concerned about the high fees and charges for unarranged overdrafts, especially when compared to the relatively small amounts lent. We have conducted detailed analysis of
how consumers use their overdrafts, looking at the transaction history of 1.5 million personal current accounts.
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overdrafts are a larger source of revenue for firms than unarranged overdrafts, the proportion of revenues from unarranged overdrafts is significantly higher, when compared to the amounts lent. Over half of the total charges paid on
unarranged overdrafts were applied to just 2% of accounts. We are taking this work forward alongside
our Strategic Review of Retail Banking Business Models, and this analysis of overdrafts will feed into that review.
Rent-to-own FCA supervision and authorisation work on rent-to-own has already driven significant improvement in the sector and reduced the risk of consumer harm. However, concerns remain about the cost
of using such services, particularly when add-on products are included, and the FCA continues to gather evidence in this area as part of its review of the market.
Home-collected credit The FCA is focusing on home-collected credit consumers’ repeat borrowing and refinancing, particularly where people take out additional borrowing with the amount outstanding from the previous loan incorporated into the new loan. There are concerns that, when consumers
refinance their loans in this way, it may result in them paying significantly more interest on the amounts originally borrowed
March 2018
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