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Categorized | Financial

FCA considers tighter curbs on high-cost consumer credit

Posted on November 29, 2016

The UK financial watchdog is considering tighter controls on high-cost consumer credit, including payday loans, catalogue credit and pawnbroking.

The Financial Conduct Authority said on Tuesday it was looking for feedback about credit products as well as overdrafts as part of a crackdown that has put many payday lenders out of business.

The FCA initially pushed through a price cap on payday loans in January 2015, and said it would consider whether the cap should be changed or scrapped. The regulator was especially interested in whether consumers had turned to illegal lenders as a result of payday lenders closing.

However, in a separate report out on Tuesday, Citizens Advice, the consumer advocacy group, found no rise in illegal loans as a result of the tougher rules for payday lenders. The group, which helps consumers with debt problems, instead recorded a fall in the number of illegal loan cases in the past year.

Additional research from the Social Market Foundation found that while the new rules had caused the payday loan market to shrink — the number of loans sold in January to April 2016 was 42 per cent lower than in the same period of 2013 — costs for borrowers had also fallen.

The FCA first said earlier this month that it would also look to implement measures to improve transparency for overdraft users — including whether new rules are needed surrounding a so-called monthly maximum charge for overdrafts — following recommendations from the Competition & Markets Authority.

On Tuesday, the regulator, which first began regulating consumer credit in 2014, said it would “look in more detail at overdrafts from a consumer protection, as well as competition, perspective”.

Andrew Bailey, FCA chief executive, said: “This is a significant moment for our approach to consumer credit regulation as we continue to ensure that this market works well for consumers.

“As an organisation, 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 non-compliance across all credit markets.”

Citizens Advice has called for a cap on prices for so-called rent-to-own transactions, where people lease household products for a weekly or monthly rate, with the option to buy the product after a certain time.

The advocacy group is also pushing for caps on prices for logbook loans, where people borrow against the value of their car, and guarantor loans, which require loans to be co-signed by a second person.