Plan to crack down on high-cost credit

Evening Telegraph (Late Extra Edition) - - UK WORLD TODAY -

BRI­TAIN’S fi­nan­cial watch­dog has launched a sweep­ing crack­down on high-cost credit as part of ef­forts to pro­tect vul­ner­a­ble con­sumers.

Fol­low­ing a wide-rang­ing review into the sec­tor, the Fi­nan­cial Con­duct Author­ity is propos­ing re­forms to bank over­draft charges, rent-to-own operators, door-step lend­ing and cat­a­logue credit and store cards.

FCA chief ex­ec­u­tive An­drew Bai­ley said: “High-cost credit is used by more than three mil­lion con­sumers in the UK, some of whom are the most vul­ner­a­ble in so­ci­ety.

“To­day, we have pro­posed a sig­nif­i­cant pack­age of re­forms to en­sure they are bet­ter pro­tected in­clud­ing the pos­si­bil­ity of a cap on rent-to-own lend­ing.

“The pro­pos­als will ben­e­fit over­draft and high-cost credit users, re­bal­anc­ing in favour of the cus­tomer.”

The FCA es­ti­mates that banks raked in £2.3 bil­lion in rev­enue from over­draft charges in 2016, ar­gu­ing that the sys­tem needs “fun­da­men­tal re­form”.

The watch­dog is con­sid­er­ing a num­ber of mea­sures to make it eas­ier for cus­tomers to man­age their ac­counts, in­clud­ing mo­bile alerts warn­ing of po­ten­tial over­draft charges and stop­ping the in­clu­sion of over­drafts in the term “avail­able funds”.

This is on top of re­quir­ing on­line tools to make the cost of over­drafts clearer, in­tro­duc­ing mech­a­nisms to as­sess the el­i­gi­bil­ity for over­drafts and mak­ing it clear whether over­drafts are credit or bor­row­ing.

Mr Bai­ley added: “Our im­me­di­ate pro­posed changes will make over­draft costs more trans­par­ent and pre­vent peo­ple un­in­ten­tion­ally dip­ping into an over­draft in the first place.

“How­ever, we be­lieve more fun­da­men­tal change is needed in the way banks charge cus­tomers for over­drafts. Given the size of the mar­ket our work here will be com­pleted as part of our wider review into re­tail bank­ing.”

The FCA be­lieves that these mea­sures alone will save cus­tomers up to £140 mil­lion a year.

Be­yond that, the FCA will con­sider more rad­i­cal op­tions to ban fixed fees and end the dis­tinc­tions around unar­ranged over­draft prices.

The rent-to-own sec­tor has also come un­der scru­tiny from the watch­dog, which found that costs for 400,000 cus­tomers who rely on the sec­tor can be ex­cep­tion­ally high.

It cited ex­am­ples of peo­ple hav­ing paid £1,500 for an elec­tric cooker that could be bought on the high street for £300.

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