Our response to FCA update on high-cost credit review

_{31 January 2018}

Today the Financial Conduct authority (FCA) issued an update on their review of high-cost credit.

It includes concerning findings that a small minority of overdraft users are paying almost half of all overdraft charges1, including high cost unarranged overdraft charges.

This echoes our recent research2 that 2 million people are stuck in persistent overdraft debt. The FCA should consider eliminating unarranged overdraft charges in their upcoming consultation, as they have previously stated they may not have a place in modern banking. The FCA should also work with banks to identify and support those in persistent overdraft debt.

Lack of access to affordable credit means households on lower incomes are paying the highest prices for essential household goods, as the FCA also finds that high cost credit products such as rent-to-own are causing difficulties for the most vulnerable, who also have fewer options.This chimes with our research findings that 1 million people are using high cost credit for everyday essentials3.

To prevent those who are struggling most from falling into problem debt, the charity is calling for urgent government action on creating alternatives to high cost credit, following the Australian model of a no interest loan scheme and has joined the End Child Poverty coalition’s call for a price cap on rent-to-own goods4.

Peter Tutton, Head of Policy at StepChange Debt Charity, said:

“We welcome this update from the FCA that echoes the findings of our own research. The pressing need now is to call time on harmful persistent overdraft debt and charges causing hardship for people who are already financially vulnerable. We're keen to get to work with the banks and the FCA on solutions, as personal banking is just too important to everyone’s financial health to allow these problems to continue.

“Furthermore, government must ensure families do not have to pay a poverty premium to get the most basic household goods, and help develop alternatives to high cost credit.”

Notes to Editors

1. The FCA looked at consumers who used their arranged overdraft every month in 2015 and 2016. They found that 6.5% of PCA accounts fell into this group and that they paid around half of both arranged and unarranged overdraft charges: High-cost credit review Jan 2018
2. StepChange Debt Charity ‘Stuck in the Red’ report on overdrafts, December 2017
3. StepChange Debt Charity ‘The high cost of credit: the need for more affordable alternatives to high cost credit’. July 2017
4. End Child Poverty campaign ‘Rent to Own’