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Our response to the FCA high cost credit review outcome

Our responses on high cost credit and better protecting consumers

In May 2018, the Financial Conduct Authority published the outcome of its review of high cost credit. The FCA has proposed a series of interventions to make high cost credit products work better for consumers.

Their proposals include:

  • Addressing high overdraft costs and complex pricing by aligning authorised and unauthorised overdraft fees, requiring that overdraft fees are structured using a simple interest rate expressed in APR and potentially implementing a ‘backstop’ overdraft price cap
  • Addressing low consumer engagement with overdraft fees with a series of mandatory information measures like text message alerts, fee calculators and account switching eligibility tools (in addition to banning the common practice of framing an overdraft as part of the available balance for an account)
  • Capping the price of rent-to-own products to address excessive costs and banning the sale of extended warranties, which aren't suitable for many consumers, at the point of sale
  • Making it easier for people to reject catalogue credit and store card credit limit increases and requiring firms to provide clear information about ‘buy now, pay later’ offers and prompt people to repay within the offer period
  • Extending the new rules that require firms to help people in long-term persistent credit card debt to catalogue credit and store cards. The FCA is also consulting on a similar package of measures that would apply to persistent overdraft debt
  • Clarifying that home credit providers shouldn't solicit new loans and refinancing unless a customer explicitly requests this, and requiring that agents explain clearly the comparative costs of refinancing options so that customers can make the best choice

We welcome the proposals the FCA has set out and we have used the consultation to explain how these measures should be implemented to better protect consumers.

Our three response papers discuss our recommendations for high cost credit, overdrafts, and the rent-to-own market.

Our response to the consultation on overdrafts

The FCA’s proposals don't substantively address the problem of unaffordable overdraft lending. We'd like to see the FCA investigate overdraft lending and develop standards to ensure consumers’ overdrafts are affordable, taking into account their financial circumstances.

Download our overdrafts response

Our response to the consultation on high cost credit

We've asked the FCA to monitor home credit refinancing and reconsider a limit on refinanced loans if there's no significant reduction in the practice in the light of practical problems enforcing the proposed requirements.

While supportive of the FCA’s proposals to extend the credit limit increase opt-out and persistent debt interventions for credit cards to catalogue credit and store cards, we've also called on the FCA to consider how the requirements should be adapted for a product (catalogue credit) in which consumers tend to be more financially vulnerable.

In light of the evidence of poor lending practice, we've also called on the FCA to intervene further if practice doesn't improve.

Download our high cost credit response

Our response to the consultation on rent-to-own

We've called for an extended grace period of at least one week between purchasing a rent-to-own item and the sale of any extended warranty to allow consumers to investigate alternatives, shop around and make a decision.

We've also asked the FCA to clarify the responsibility of rent-to-own providers to guarantee the quality of goods during a credit agreement so that people aren't sold protections they don't need.

Download our rent-to-own response