City watchdog prepares to publish new rules on costly consumer loans
The UK's financial watchdog has said it is preparing to clamp down on high-cost consumer credit..
The UK's financial watchdog has said it is preparing to clamp down on high-cost consumer credit, after completing a review which has prompted concerns around the sector.
The Financial Conduct Authority (FCA) will particularly target unarranged overdrafts, the rent-to-own sector, home-collected credit (or doorstep lending) and catalogue credit.
It said new rules addressing these areas will be publishing in the spring, and it is also looking to provide further alternatives to high-cost loans.
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"This review and the analysis we have conducted so far give an emerging picture of the need to intervene in some parts of the market," said the FCA's executive director of strategy and competition Chris Woolard.
"At the same time we can also see the social utility of these credit products. We need to address both the choice and range available and how this market can work better for consumers."
In overdrafts, the FCA said it was concerned that high fees and charges for unarranged products were disproportionate to the relatively small amounts lent. It is set to tie work on this issue into its review of retail banks' business models.
Supervision in the rent-to-own sector had already driven improvements, the watchdog said, but there were still improvements to be made – especially regarding add-on products.
Doorstep lending was becoming a particular problem where consumers were repeatedly borrowing and refinancing, often without paying their original loan back, resulting in them paying "significantly more interest".
Meanwhile individuals who borrowed through catalogue credit were often not making informed choices or understanding the key features of the loans.
The FCA has said that as well as creating new rules, it will urge social landlords to refer tenants to cheaper credit sources and work with the government to develop "best practice" guidelines.
These will include measures to reduce consumers' reliance on loans, such as by making landlords provide white goods in the property.
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