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FCA targets overdrafts and high-cost credit to help vulnerable consumers

high-cost-creditThe FCA is set to clamp down on high-cost credit to protect consumers from unfair practices on the likes of overdrafts, catalogue credit and store cards.

The regulator says that there needs to be “fundamental reform” of how banks operate and charge for overdrafts after a review of expensive borrowing across the market. The FCA estimates that banks made more than £2.3bn from overdrafts in 2016, and that nearly a third of this came from unarranged overdrafts.

The FCA is consulting on a number of rules to help consumers manage their accounts easier. For example, it is weighing up whether to make mobile alerts of overdraft charges mandatory, along with removing any overdrafts from ‘available funds’ calculations and forcing banks to make it clearer that overdrafts are borrowing that has to be paid back.

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Together, it hopes its package will save consumers around £140m a year.

The regulator has also targeted the rent-to-own sector, where it has seen examples of consumers paying up to five times more than high-street prices for essential items like cookers after buying them through lease arrangements. It is considering capping rent-to-own prices and will do further assessment of what impact the move would have.

Catalogue credit and store card providers will follow credit card providers in being forced by the FCA to do more to stop consumers getting into persistent debt.

FCA chief executive Andrew Bailey says: “High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected.”

Quilter responsible business director Jane Goodland says more effort needs to be put into financial education to avoid problems with debt.

She says: “There are many reasons why people end up in debt and use expensive credit products. But a contributing factor is undoubtedly a lack of financial capability. Too many people struggle to plan ahead and take control of their financial choices by making informed decisions, and bury their head in the sand. This can easily become problematic. To counter this, we need to make sure people are empowered to take control of their finances, and feel confident making careful and deliberate choices about money.”



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 31st May 2018 at 10:25 am

    In its heart of hearts (assuming it actually has one), the FCA must surely know that the most effective strategy to tackle the problem of unmanageably large unsecured borrowing would be to limit it to a modest multiple of nett monthly income. If it doesn’t have the power to impose such a cap, it should be lobbying the government to do so. The problem with that though is that restricting borrowing would slow consumer spending (even though far too much of it is on stuff that people generally don’t actually need) and thus the economy. So, although Andrew Bailey is trying to talk tough, this “significant package of reforms” is largely dodging what really needs to be done.

  2. “The FCA is consulting on a number of rules to help consumers manage their accounts easier. For example, it is weighing up… forcing banks to make it clearer that overdrafts are borrowing that has to be paid back.”

    Seriously, I’m lost for words.

    I guess other other forms of exploitation need to be addressed too. For example, car companies should warn customers their purchase will go down in value over time. Perhaps supermarkets should check their customers know how to open a tin of beans before selling it to them? Maybe hotels should check their customers don’t suffer from insomnia before selling them a room with a bed? Or swimming pools should carry out a swimming assessment (or at least draw attention to the use of constrained water) before allowing entry?

    At what point are the public required to take responsibility for themselves, particularly in financial services? The FCA need to draw a clear line and stop indulging in this playing to the lowest common denominator and the never-ending search for a utopia that simply doesn’t exist.

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