FCA Seeks Feedback On High-Cost Credit Products

The U.K.’s Financial Conduct Authority (FCA) announced Tuesday (Nov. 29) it is seeking evidence and feedback to further its work on high-cost credit, including a review of the payday loan price cap.

In a press release, the FCA said that, since it took over regulation of consumer credit in April 2014, it has zeroed in on products that it thinks pose the highest risks to its consumer protection objective. One area of focus has been high-cost credit, which includes payday loans, home-collected credit, catalog credit and some rent-to-own, pawn-broking, guarantor and logbook loans. Other credit products — such as motor finance, credit cards, overdrafts and some installment lending — may also be high-cost, particularly for those with less-than-stellar credit, depending on how they are used.

The FCA said it will look across all high-cost products to get a better idea of how these are used, whether they cause a detriment to consumers and, if they do, to which consumers. By doing that, it can determine if policy interventions are necessary. Some of the products it is seeking input on include overdrafts, which it will approach from a consumer protection and competition perspective.

The high-cost, short-term credit (payday loan) price cap is another concern. The FCA said the price cap came to be in Jan. 2015, and the FCA is committed to reviewing the cap two years after its implementation, which will be in the first half of 2017. The FCA said it will assess whether there is evidence that suggests that the cap should be changed. The FCA is also keen to see if there is any evidence of consumers turning to illegal money lenders directly as a result of being excluded from high-cost credit because of the price cap. The FCA expects to publish its findings on the review of the payday cap next summer.

“This is a significant moment for our approach to consumer credit regulation as we continue to ensure that this market works well for consumers,” said Andrew Bailey, chief executive of the FCA. “As an organization, we have already taken many steps to address the risk of consumer harm by putting in place new rules for high-cost, short-term credit firms and taking action against noncompliance across all credit markets.”