FCA Warning: Senseless Housing Policy Fueling High-cost Credit Rip-off

FCA Warning: Senseless Housing Policy Fueling High-cost Credit Rip-off

FCA boss Andrew Bailey has called out ministers for “forcing” tenants to take costly loans. According to Bailey, the social housing policy offering tenants unfurnished council homes has pushed many Brits to take high-cost loans. Bailey doesn’t see sense in offering tenants homes with no essential furnishing.

In a recent speech, The FCA Chief Executive hinted that social housing was driving tenants to take expensive debt to buy washing machines, cookers, and other household goods at three to four times the actual cost of the goods. Bailey doesn’t see sense in creating a good social housing system without providing essential fittings and furnishings. He also hinted that the FCA might fail to extend the payday loan cap to cover rent-to-own goods and doorstep lenders.

As an alternative, Bailey stated that the FCA was examining a wide range of approaches to dealing with the harm experienced by borrowers using these products. The FCA will elaborate on its views in June 2018. Bailey insists that the regulator will not necessarily use the same approaches to regulate different markets. In his speech, Bailey affirmed that the FCA is aware of the problems facing Britain’s poorest households depending on rent-to-own firms like PerfectHome and BrightHouse.

PerfectHomes is among the rent-to-own firms guilty of charging Britons exorbitant interest fees for household goods.

Brits who use high-cost credit pay more than twice the loan amount in interest and additional costs like insurance. In some cases, the cost can be five times the loan amount according to investigations by UK newspaper, The Sun.

These findings have prompted The Sun to launch a campaign meant to stop credit rip-off. The Sun is pushing for payday loan regulation to be extended to other high-cost loans. The payday loan cap has proved to be very effective according to Citizens Advice statistics which show a 50% reduction in problematic payday loans.

The FCA seems to be shifting focus on public awareness rather than cap policies given Mr. Bailey commented on the need for charities to focus on educating the public on the options available for borrowers struggling to get by.

In an interview with The Sun, Citizens Advice C.E.O., Gillian Guy stated that the FCA needs to do more to protect vulnerable Brits from falling into debt. According to her, giving vulnerable borrowers alternative credit options doesn’t help everyone or replace the urgent need for more borrower protections especially for doorstep and rent-to-own loan customers.

Landlords should be part of the solution

Sara Williams from popular money blog, Debt Camel, believes landlords can contribute to the solution by offering tenants a chance to purchase some household goods like washing machines at discounted prices or with affordable repayments. Williams recognises the possibility of doorstep and rent-to-own loans becoming difficult to manage in cases of defaults which is why she stresses on the importance of the FCA stepping in to cap total repayments when borrowers face repayment problems.

Williams insists on the need for the regulator to give lenders better guidelines i.e., on affordability to ensure those who get loans are capable of repaying them.

The C.E.O. of Joseph Rowntree Foundations, Campbell Robb shares similar sentiments. Robb sees it as unethical for low-income earners to be exploited by high-cost lenders stating that this is how people are trapped in poverty. He sees the need for more to be done to make affordable credit accessible given the UK has experienced long periods of low wages, frozen benefits and rising prices, factors which are landing many into poverty.

The Sun campaign

The Sun is demanding an end to credit rip-off. The newspaper’s demands for rent-to-own credit include; repayable costs to be capped to twice the item list prices. The Sun is also calling for a ban on sales staff incentives and discounts for existing clients to discourage them from taking more credit. Credit companies should also publish examples highlighting all costs.

For doorstep lending, The Sun wants stricter affordability checks and a cap on total fees and interest paid to match the payday loan cap, i.e., cost of loan should never exceed the amount borrowed. The Sun is also calling for a ban on discounts offered to existing doorstep loan borrowers in an attempt to lure them to take more credit.

Mark Scott

Is the Company Director of Swift Money Limited. He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.