The financial regulator has announced new proposals designed to protect millions of people who use overdrafts and high-cost credit – and hopes they could save consumers more than £200m a year.
The Financial Conduct Authority (FCA) has today put forward a number of proposals to change the way overdrafts, the rent-to-own sector, home-collected credit and store card firms operate.
The regulator says it has identified a need to intervene in the rent-to-own sector, where it says customers are often paying “exceptionally” high fees for items they could get much cheaper on the high street.
It says the harm to customers in the rent-to-own sector is sufficient to consider a cap on rent-to-own prices and that it will now carry out the detailed assessment of the impact that a cap could have, and hopes to introduce one, if needed, by April 2019.
None of the changes proposed by the FCA will come in immediately – they will now be consulted on. See below for a full rundown of the changes being proposed.
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What changes has the FCA proposed?
The changes the FCA are consulting on follow a review into the high-cost credit market – some of these proposals are being consulted on from today.
Some of the main proposals are outlined below:
- Overdrafts – the FCA says it is considering radical options to ban fixed overdraft fees and to end the distinctions between how arranged and unarranged overdrafts are priced, as well as tackling harm from repeat use. It says it will consult on any proposals in late 2018.
Now, the FCA is also consulting on mandatory rules to make it easier for customers to manage their accounts, including: 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, introducing mobile alerts warning of potential overdraft charges, and making it clear overdrafts are credit or borrowing.
It believes these changes could save customers up to £140 million a year.
- Rent-to-own – the FCA says costs for the 400,000 customers that use the rent-to-own sector can be exceptionally high. It says it has seen examples where people have paid over £1,500 for essentials like an electric cooker, which could be bought on the high street for less than £300.
It says it believes the harm identified in this market is sufficient to consider a cap on rent-to-own prices and that it will now carry out the detailed assessment of the impact that a cap could have on the rent-on-own sector and how it might be structured. It says it is also open to other suggestions. The FCA will undertake this work over the next few months with the aim of introducing changes, if appropriate, in the rent-to-own sector by April 2019.
It is also consulting now on a ban on the sale of extended warranties at the point of sale.
- Home-collected credit – the FCA is consulting on guidance to make clear that firms must not visit customers to offer new loans or refinancing unless the customer requests this.
It is also consulting on
rules requiring that firms give consumers a clear explanation of the comparative costs of taking out a new loan and refinancing an existing one.
- Catalogue credit and store cards – the FCA says catalogue credit and store card firms will be required to do more to help customers avoid persistent debt in the same way as credit card providers have been made to do.
It is consulting on new rules to require firms to do more to help customers in long-term persistent debt to repay more quickly, and to find and help customers in financial difficulty.
It is also consulting on rules that will
give customers more choice about whether their credit limits are increased and ensure that firms do not raise limits for customers in difficulty or the interest rate on their accounts.
What does the FCA say?
Andrew Bailey, chief executive of the Financial Conduct Authority 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 in to 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.’
“Under legislation the FCA is required to formally consult on rules it proposes to introduce. Consultations must be open and transparent, and the FCA cannot prejudge the result. In order to consult, the FCA must have a sufficient evidence base on which to base its proposals and develop a cost-benefit analysis, which is why the FCA has launched this call for input. These checks and balances ensure any proposed measures are proportionate and necessary to protect consumers.”