In a continuation of the long-running trend towards ever-tighter restrictions on lending practices, the Financial Conduct Authority (FCA) has announced a crackdown on providers of high-cost credit, including rent-to-own retailers, home credit lenders, and providers of catalogue credit and store cards.
Rent-to-own, as practised by retailers such as Brighthouse, bears the brunt of the recommended measures, and will be subject to price caps akin to those applied to payday lenders. Providers of home credit will face restrictions on how they promote their loans, and providers of store cards and catalogue credit will have to offer clearer explanations and warnings for their products.
However, the FCA has steered clear of imposing price caps on bank overdrafts, opting instead for less stringent measures such as compelling banks to provide clearer alerts for consumers, online and mobile tools for assessing overdraft eligibility and costs, and excluding overdraft limits from available balance calculations.
The FCA has perhaps been dissuaded from tougher action by the Supreme Court ruling of 2009, which saw the Office of Fair Trading’s (OFT’s) legal action against bank charges unexpectedly defeated. However, the political climate has changed markedly since then, and the FCA will find it hard to resist the criticism it will inevitably face from politicians, campaigners, and the media.
Regulators can, and have, performed u-turns. Back in 2010, the OFT review into high-cost credit issued a broadly favourable verdict on the sector and explicitly ruled out price controls on the grounds of likely consumer detriment. Just four years later, the FCA rejected this approach and announced price caps on payday lending, following a sustained campaign by pressure groups.
Therefore although banks have escaped concrete measures for the time-being, the status quo is under threat. Tellingly, the FCA has stated that it will consider more interventionist measures, including price caps and simplified charging structures, and banks should treat this as a warning that, if it fails to change its practices, the FCA will do so for them.
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