The Financial Conduct Authority (FCA) will seek reform across high-cost credit sectors including bank overdrafts after it published the results of its review into practices.
The regulator will now consult with the lending industry on some of its findings and proposals.
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Four sectors of high-cost lending were highlighted: bank overdrafts; rent-to-own credit; home collected credit and catalogue credit and store cards.
Across all four sectors, the regulator is seeking to challenge around £209.2m of lender revenues.
The regulator said that in 2016 firms made an estimated £2.3bn in revenue from overdrafts: 30% of this was from unarranged overdrafts which were paid by 1.5% of customers, who pay around £450 per year in fees and charges.
Tbe FCA wants to consult on mandatory rules to make it easier for customers it manage their accounts, including
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By GlobalData- mobile alerts warning of potential overdraft charges
- stopping the inclusion of overdrafts in the term ‘available funds’
- requiring online tools to make the cost of overdrafts clearer
- introducing online tools to assess eligibility for overdrafts
- making it clear overdrafts are credit or borrowing
The regulator will also address the rent-to-own sector, where it said that repayments could be five times the value of the consumer asset. As a result it said it was considering a payments cap to limit repayments, on which it would consult as to the effect on this sector and how the cap could be structured. Up to £7.7m of revenue could be affected.
The FCA said it would also look at home-collected credit, where it would introduce new requirements to raise standards in disclosures and sales practices. The FCA said £34m of revenue in this sector could be affected.
Andrew Bailey, chief executive of the FCA said: ‘High-cost credit is used by over three million consumers in the UK, some of who 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 the favour of the customer.
‘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.’
