FCA 'committed' to consumer credit regulation, says expert, as new review begins

It has begun a consultation exercise, the results of which it will use to help it decide on its future regulatory priorities. This could include extending the cost cap to more forms of high-cost credit, in order to make its actions more "consistent" across the different types of product.

The FCA is hoping to establish a "full picture" of how different high-cost products are used, and the effects which these have on different groups of consumers. It is particularly keen to review the use of and potential consumer protection issues around unauthorised overdrafts, following the recent findings of the Competition and Markets Authority (CMA). It is also seeking evidence of whether the price cap has reduced the availability of so-called 'payday loans' to certain consumers and, if so, whether they have been forced to turn to illegal money lenders.

The consultation closes on 15 February 2017.

"High cost credit is, and will continue to be, a significant focus for the FCA, illustrated by its previous actions in relation to payday lending and debt management firms," said financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com. "The inclusion of unarranged overdrafts in this consultation should also come as no surprise to those who have followed the CMA and FCA's work in this area."

"While the FCA has at least acknowledged the potential for its actions to have resulted in those who are most vulnerable obtaining loans from loan sharks and placing them at greater risk, the FCA appears to be committed to continuing its tight grip on consumer credit. The key for the FCA will be not to throw the baby out with the bath water and exclude those consumer credit firms that are acting compliantly, resulting in even more vulnerable individuals having to turn to non-regulated lending," he said.

The FCA took over responsibility for consumer credit from the Office of Fair Trading (OFT) on 1 April 2014, backed by stronger powers to clamp down on poor practice than those that were available to its predecessor. Oversight of payday lending and debt management services has been a particular focus of its work, and its initial review of debt collection practices at these lenders found examples of "serious non-compliance and unfair practices" by a number of firms.

Regulatory action taken by the FCA since 2014 includes limits on the number of times that lenders can 'roll over' loans for repayment the following month, and restrictions on the use of continuous payment authorities as a means of recovering debt directly from a borrower's bank account. Since 2 January 2015, interest rates on payday lending have been capped at 0.8% of the amount borrowed per day, subject to an overall cap limiting interest and fees to the level of the amount originally borrowed.

The FCA had committed to reviewing the impact of the cost cap two years after it came into force, making now "the right time to take a boarder view of the issues around high-cost credit ... and to consider whether our requirements remain appropriate", FCA chief executive Andrew Bailey said.

Products such as home-collected credit, catalogue credit, some rent-to-own products, pawn-broking, guarantor and logbook loans will be included within the scope of the FCA's review, according to a statement by the regulator.