Our debt problems are even worse than you think

Tipped to be Bank of England governor, the City watchdog chief issues a stark warning

ANDREW Bailey, Britain’s top financial consumer regulator, is worried about debt – as well he might be.

not that he’s personally in the soup, of course, he’s paid around £460,000 a year.

But as chief executive of the Financial Conduct Authority (FCA), he is acutely aware that many households have taken on too much borrowing.

Problem debt, he says, ‘is something people wouldn’t realise is as prevalent as it is’. so much so that hundreds of thousands of Britons are on debt management plans – no one knows exactly how many – to try to get their finances back from crisis point.

And then there is the interest rate timebomb. ‘We are living in a very low interest rate environment, when the cost of debt has been historically low, so there is a worry what happens when interest rates rise,’ he says. His eyes were opened about the misery that outof-control borrowing can cause by visits to debt advice centres around the country. ‘I take my hat off to what they do.’

so has there been irresponsible lending? In a study of credit cards, he says, the FCA felt providers were not taking enough notice of how people were not paying down balances. ‘The providers were too prepared to leave it there because they are making money off it.’

The watchdog ordered providers to stop ratcheting up customers’ credit limits, to talk to them and make sure they went for debt advice, rather than just let the borrowing carry on.

The FCA has already ordered a cap on the amount lenders can charge under payday loans. now borrowers never have to pay back more than twice the amount they borrowed, to protect them from ballooning debt. ‘We’re now looking at high- cost credit across the board,’ he says. ‘We’re looking at overdrafts, and so-called rent-to-own, which used to be called hire purchase, then there are guarantor loans and logbook loans.’

It takes only a few minutes talking to Bailey to realise he keeps his feet firmly on the ground. Friends say he has never been interested in personal aggrandisement, but that he inherited a sense of public service from his headmaster father.

BAILEY makes huge efforts not to cloister himself in the FCA’s headquarters in Canary Wharf. Just before he was installed at the FCA last year he opted out of the annual Davos shindig for the rich and powerful and instead visited a credit union and a small bank in the north east.

Bailey is a 30-year veteran of the Bank of england and is one of the leading contenders to take over as governor when the current occupant, Canadian Mark Carney, packs his bags. Bailey’s intellectual credentials are not in doubt, and his affinity for the man in the street will also stand him in good stead in the top job. Interest rate policy, after all, has a huge impact on everyone through savings and mortgages.

Despite his concerns, he’s not judgmental about debt. Borrowing, he acknowledges, is an essential part of life. ‘What we don’t want to do is cut off people’s access to credit. In a world where you have got less predictable employment, people need to have credit to smooth the path.’

Making sure consumer credit firms behave is just one part of the FCA’s responsibilities. The regulator has a very large remit, covering consumer protection, competition and the integrity of markets. It began regulating consumer credit in 2014 and its 3,500 staff now oversee 56,000 firms.

One area he doesn’t cover is problems that small firms have suffered with their banks – indeed, he reckons there is a need for another ombudsman. ‘There isn’t a proper dispute resolution process, you get very difficult cases.’

On top of that, there is plenty of work to be done on Brexit. Bailey has earmarked £2.5m to deal with the changes to thousands of pages of consumer protection, payments services and markets legislation that needs to be transferred from eu to uK law.

In his time, Bailey has had runins with several of Britain’s most notorious bank bosses, including Fred Goodwin and Paul Flowers, the ‘ Crystal Methodist’ who chaired the ill-fated Co-op Bank.

But the Bank of england itself has not escaped criticism. so what does he make of the current controversy over the Bank’s role in libor rate-setting?

The Old lady has been accused of encouraging banks to ‘lowball’ libor figures – keep down the rates at which banks borrow between themselves – during the crisis. The higher a libor rate submission, the riskier a bank is deemed to be, so there was a clear motive for trying to keep rates down at that time.

The Bank is assisting the serious Fraud Office, which is conducting a criminal probe into libor manipulation by banks and traders, and will publish material when it is finished. Bailey was not involved in libor at the time in question, but was deputy governor in the aftermath. He draws a distinction between the so-called low-balling to try to protect the banking system, and the manipulation of libor by individuals and banks for their own gain.

‘Manipulation was done for the benefit of individuals and their firms – it was for private benefit. The argument about lowballing, is look, you have to understand the context in which it happened.

‘We were in a desperate situation. We were living in times – it is hard to remember now – but desperate times.’

THE regulators came in for harsh criticism for allowing the banks to run rampant before the crisis and for appearing slow and reluctant to investigate the downfalls of rBs and HBOs. A report into HBOs did not appear for seven years after the event.

The FCA is also looking into the behaviour of Barclays boss Jes staley, who last year tried to flush out a whistleblower’s identity.

While not commenting on either HBOs or the Barclays case, it is, Bailey says, ‘ absolutely crucial’ that whistleblowers feel they can come forward. ‘It is a very important source of information for us. It’s important for society.’

Bailey arrived at the FCA last year after a series of blunders by his predecessor and, so far, he hasn’t put a foot wrong.

Indeed, he has risen seamlessly up the career ladder at the Bank of england, handling some of the most difficult episodes of the financial crisis with aplomb.

There are enormous challenges at the FCA. It’s a very tough job, but if anyone can do it, he can.