The UK’s Financial Conduct Authority (FCA) has today launched a call for inputs on high-cost credit. The FCA, which regulates the conduct of financial services providers and financial markets, had previously committed to a review of the price cap imposed on pay day lending in 2015. It has now decided to take the opportunity to look at all high-cost credit products as a whole. Frontier (Europe) advised the FCA on the analysis and design of the pay day lending price cap.
The FCA has said it will look at how high-cost products are used, whether they cause detriment, and to which consumers. The broader review will allow the FCA to consider issues such as the extent to which (potentially vulnerable) consumers may substitute between different high-cost credit products. To that end, the FCA is seeking views on which high-cost products to review, whether there is detriment in the market and what remedies might be suitable.
The FCA’s initial findings on the impact of the pay day lending price cap include a contraction in the size of the market, which was expected. Crucially, however, default rates have fallen and customers are paying substantially less. The FCA has also found that the market remains viable with firms continuing to operate on the high street and make a profit.
Two other aspects that the FCA has noted in its call are the extent and impact of repeat borrowing and overdrafts. The review of overdrafts follows the Competition and Market Authority’s investigation into Retail Banking, which asked the FCA to take forward actions on remedies that include reviewing a Maximum Monthly Charge, and prompts and alerts to help consumers better manage fees and charges.
Frontier regularly advises financial services clients on competition and regulatory issues.
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