Since 2017, the FCA has been demonstrating an urgency to come up with new rules aimed at protecting Britons from high-cost credit. According to the latest reports from the regulator, UK borrowers could soon have better laws protecting them from doorstep lenders as well as household appliance rental companies. According to a statement released by the FCA (Financial Conduct Authority) on 31st January 2018, the regulator has concluded a review of the financial market. The review which has been ongoing since July 2017 shows an urgent need for intervention.
The FCA has promised to intervene although it will take actions that don’t compromise access to credit to individuals who can afford repayments. The regulator is planning to publish proposals and conclusions in Spring.
The Regulator’s take
According to Christopher Woolard, Executive Director for Strategy & Competition at the FCA, the regulator must address the variety and availability of credit. The regulator also needs to find ways in which the credit market works better for consumers.
Besides proposing new rules/laws where there is clear evidence of consumer exploitation, the FCA is also looking at solutions revolving around alternatives to high cost loans.
The FCA has identified specific consumer segments that are most vulnerable. One such segment is the rent-to-own consumer segment. The FCA’s analysis finds this particular segment extremely vulnerable given the outstanding debt of this segment doubled in the recent past from November 2014 to November 2016 (£2,000 to £4,300 respectively). Customers most affected are those who pay for household goods such as television sets and fridges over time.
The FCA is also concerned with customers who use overdraft facilities. The regulator is concerned about the high fees associated with unarranged overdrafts especially in comparison to the amount lent. The FCA is seeking more data from lenders who offer doorstep loans (loans offered in people’s homes).
According to the latest statistics, 700,000 Britons took out home-collected credit loans in 2016. The same statistics show that 1.6 million Britons had outstanding home-collected loans by the end of 2016 which translates to a record $1.1 billion pounds.
Doorstep loans aside, the FCA is also concerned about catalogue credit particularly, the complexity of fees/charges structure as well as the variety of repayment options available. Catalogue credit is offered to people buying things from catalogues on credit.
Back in 2015, the FCA introduces a cap on the amount of interest charged on payday loans. The move has had a positive impact on the payday loan industry. Payday loan borrowers no longer have to pay more than the loan amount total in fees/charges. The cap has been deemed effective in getting rid of unscrupulous lenders who were thriving in a poorly regulated environment. Borrowers can now rest assured they won’t be exploited when taking payday loans which are supposed to assist in times of emergency and not act as a gateway to debt. The payday loan cap was introduced after widespread complaints and criticism from legislators, the clergy and public on the high interest charged on payday loans taken by the most vulnerable customers.
Protecting yourself from high cost loans
Although the FCA has done a lot, more needs to be done. The FCA will review the current payday loan cap in 2020. In the meantime, you need to protect yourself from high cost loan segments that are yet to be regulated adequately. Here are some tips to consider.
- Shop around: Although most people who consider taking out short term loans are usually in financial distress, it is advisable to shop around just to make sure you are getting fair terms. Shopping for loans in the UK is easy today. You can use loan comparison websites to find suitable and affordable loans fast and easy.
- Start an emergency fund: The main reason why people turn to lending institutions when in distress is because they don’t have their own funds to use in emergency situations. An emergency fund will reduce your overreliance on short term loans which will in turn reduce your exposure to high cost credit risks.
- Borrow from reputable lenders only: Lastly, borrowing from licensed and regulated lenders only can shield you from unfair fees and charges. The short-term lender you choose should be regulated by the appropriate body such as the FCA. You should also check online reviews to see what existing customers are saying about a lender before you take out any loan.
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.