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High Cost Credit: Call for Input

1st December 2016

The FCA have called for input with regards to high cost credit.

On Wednesday (29th November 2016), the FCA launched a call for input relating to high-cost credit, including a review of the price cap for high-cost short-term credit (HCSTC).

This call for input looks to build upon previous work undertaken by the regulator two years ago (see in PS14/16), the Competition and Market Authority’s final report on the retail banking market investigation in August this year in addition to the Law Commission’s report on the review of the Bill of Sales Acts two months ago in September 2016.

Of particular focus within this call for input by industry participants is for evidence on products that the FCA believe pose the greatest risk to their objective for consumer protection. The call for input therefore covers the following factors.

High-cost products

The FCA is thinking of broadening the scope to include credit cards, motor finance, overdrafts, and some instalment lending.

The FCA is also contemplating interventions if there is detriment to consumers.

HCSTC: Definition and boundaries

The regulator is aware that firms are exploring the boundaries of the HCSTC definition and thus the FCA will continue to keep this under close review.

In particular, the FCA is considering whether the Annual Percentage Rate (APR) or repayment period continues to be appropriate bearing in mind firms’ product innovation and their interpretation of the rules.

Overdrafts: Charges and transparency

Last month, the FCA published its response to the Competition and Market Authority’s report on its investigation into competition in the retail banking market.

The FCA is now examining overdrafts from a competition and consumer protection stance and specifically considering the nature and level of charges and any lack of transparency.

At present the regulator has acknowledged that additional evidence is needed to assess any detriment to consumers and what appropriate solutions might be.

Price cap review for HCSTC

During the first half of next year, the FCA is set to review the HCSTC price cap and in their current call for input is considering if there is evidence to indicate that the price cap should be altered.

In addition, the regulator is keen to determine if consumers are turning to illegal money lenders due to finding themselves excluded from high-cost credit because of the price cap.

Multiple and Repeat borrowing

The FCA informs that they will continue to review market trend data and whether, factors such as repeat and multiple HCSTC borrowing will impact the decision to be made on any alterations to the price cap

Those wishing to respond to the FCA’s call for input are requested to do so by 15th February 2017 whereupon the FCA will the assess all the evidence gathered during the process and expect to publish the HCSTC price cap review results in the middle of next year.

It is expected that if additional work is required on the price cap, then this will likely take place during the second half of next year through to the first half of 2018.

In addition, the FCA will look to work upon issues relating to high-cost credit and overdrafts during the second quarter onwards of 2017.

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