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The Analysis News & Opinions


High-cost creditors welcome regulator’s ‘acceptance’


High-cost, short-term creditors have


welcomed comments from the regulator, which they believe acknowledge their acceptance into the range of responsible lending options. Responding to the Financial Conduct


Authority’s (FCA) update on its work in the high-cost credit sector, Greg Stevens, chief executive of the CCTA, said: “We have seen a very significant concession from the FCA. The regulator has acknowledged that ‘the provision of high-cost credit can have a socially valuable function’ and that access to legal, regulated sources needs to be maintained. “This is music to the ears of hundreds of


responsible, specialist lenders serving small local communities up and down the country. These businesses are being choked out of the market by wave after wave of regulation designed to protect consumers, but actually causing them harm by reducing their access and choice to legal products. “Making the case for ‘high-cost credit’ is a


thankless, but necessary, task. My hope is that today we have drawn a line in the sand on the level of regulation the sector is able to bear.” The update follows a Feedback Statement


published by the FCA in July 2017, which identified key areas of concern with the lending sector, including overdrafts, rent-to- own, home-collected credit, and catalogue credit. It found that work undertaken since July


2017 had 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 it had the evidence that markets are not working well for consumers, the FCA said it was prepared to look at solutions designed to increase the choice and availability of alternatives to high-cost credit. It will look at the guidance given to social landlords and others about referring to cheaper sources of credit, and is also


March 2018


proposing to work with government to highlight examples of best practice around alternative models. The FCA said it considered it 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. Christopher Woolard, executive director


of strategy and competition said: “High-cost credit products remain a key focus for us. We have already taken 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. “This review and the analysis we have


conducted so far give 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.” However, the FCA insisted that it


“remained concerned” about the high fees and charges for unarranged overdrafts, especially when compared to the relatively small amounts lent. The FCA has conducted detailed analysis of how consumers use their


www.CCRMagazine.com


overdrafts, looking at the transaction history of 1.5 million personal current accounts. The data had shown that, while arranged 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. It is taking this work forward alongside a


Strategic Review of Retail Banking Business Models, and this analysis of overdrafts will feed into that review. The FCA is also 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 being incorporated into the new loan. It said that there were concerns that when


consumers refinanced their loans in this way, it may result in them paying significantly more interest on the amounts originally borrowed than they would, had they maintained separate loans. The FCA has requested further data from


firms on their lending patterns, and the nature and extent of refinancing, to examine ways in which other borrowing options could work better for consumers.


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