The Financial Conduct Authority (FCA) has recently completed its review of the high-cost consumer credit industry and is pleased with its current status, New Business reports.
The FCA took over from The Office of Fair Trading in 2014 as the regulator for consumer credit including loans and credit cards. One of its main priorities was to provide remedies to the heavily criticised payday lending industry, accused of charging usurious rates of interest.
Two-and-a-half years later, the FCA’s research shows that they are happy with the outcome of the measures carried out. This has resulted in around 760,000 borrowers saving a total of £150 million per year and companies were now stricter and less likely to lend to those who cannot afford to repay.
Changes Implemented by The FCA
The initial change introduced by the regulator was a price cap to limit lenders charging more than 0.8% per day, equal to £24 per £100 borrowed. This intended to reduce the high rates charged by lenders and ensure that a borrower would never repay double what they took out.
Other changes include a cap on default rates at a maximum of £15 and only charged as a one-off. For those brokers or lenders offering short term and high cost credit products, they are required to go through a rigorous application process to become FCA authorised – which has resulted in hundreds of irresponsible or unfit companies to leave the industry.
For lenders, the cut in profit margins has led to a more selective criterion, and this has protected those who were previously deemed vulnerable or ineligible.
A spokesman from Uncle Buck said: “We have welcomed the new regulation by the FCA. It means that consumers now have access to more affordable rates of interest and lenders that are fit and proper to offer these products.”
Other Industries Under the Spotlight
In its recent review, the FCA confirmed that it is happy with the running of the payday industry and will not need to review the price cap again until 2020.
A sector that is attracting a lot of attention from the regulator is the cost of authorised bank overdrafts, which involves using a credit facility that was not unplanned or previously verified by your bank.
Depending on the bank or card provider, going into your unauthorised overdraft can cost an individual around £6 per day or £90 per month. Whilst banks have been quick to respond with text message alerts and caps on the maximum they charge, the FCA confirmed that many consumers find there is a lack of transparency and that the most vulnerable in society are relying on their overdraft facility at an exorbitant price. The industry is currently under review and will be updated in Spring 2018.
The regulator has also highlight the high costs and lack of transparency in other industries including motor finance, rent to own and credit on good bought from catalogues. Each sector will be subject to further review.