FCA publishes outcome of high-cost credit review

[Legal Beagles]

The Financial Conduct Authority (FCA) has announced new proposals designed to protect millions of people who use overdrafts and high-cost credit.

https://www.fca.org.uk/news/press-re...-credit-review

[Amethyst]

OVERDRAFTS - Consultation ( another one ) https://www.fca.org.uk/publication/c...on/cp18-13.pdf

The Proposals made by the FCA set out a case for considering more direct intervention in the way that firms price their overdrafts in order to address these concerns and set out a potential package of measures including price simplification through a ban on all fees, a requirement for firms to charge for overdrafts using interest rates and to include APRs in arranged overdraft advertising and price alignment between arranged and unarranged overdrafts. They are also looking to model the potential role of a backstop price cap, which could cover both arranged and unarranged overdraft charges.


The 'Draft Handbook' Text for Overdrafts in BCOBS can be found page 101 of https://www.fca.org.uk/publication/c...on/cp18-13.pdf and amendment draft text to CONC can be found page 134 of same.

[Amethyst]

HIGH COST CREDIT - Consultation -> https://www.fca.org.uk/publication/c...on/cp18-12.pdf

High-cost Credit Review: Consultation on rent-to-own, home-collected credit, catalogue credit and store cards, and alternatives to high-cost credit

-Maintain the cap at its current level for a further three years.

-Require catalogue credit and store card firms which offer ‘buy now pay later’ (BNPL) and similar offers to provide consumers with clearer explanations of the implications and costs of not paying back within the offer period.

-Require these firms to remind their customers when the offer period is about to come to an end to prompt repayment.

-Give catalogue credit consumers more choice about whether and how their credit limits are increased.

-Ensure catalogue credit firms do not give credit limit increases to customers in financial difficulties or increase the interest rate on their account.

-Require firms to use the information they hold to identify customers at risk of financial difficulty and take appropriate steps. We also propose to apply these rules to store cards.

-Require firms to offer customers in persistent debt help to repay it more quickly. We also propose to apply these rules to store cards.


CONSULTING ON:

HOME COLLECTED CREDIT
-Point of sale ban on extended warranties
-Enforcing the prohibition on canvassing off trade premises ( don't talk people into taking out more loans when collecting on another loan)
-New information requirements for refinancing and further borrowing

CATALOGUE AND STORE CARDS
- new rules clarifying that firms must explain clearly upfront how interest will be charged if the customer does not repay within the BNPL offer period
- extend the existing rules for credit cards and store cards regarding credit limit increases to catalogue credit
- catalogues - not increase credit limits or interest rates for customers at risk of financial difficulties ( as currently for credit cards )
- catalogues - early intervention in financial difficulty cases ( as currently for credit cards )
- catalogues/store cards - identify persistent debt ( define persistent debt as where over a period of 18 months a consumer pays more in interest, fees and charges than they have repaid of the principal ) intervention at 18, 27 and 36 months ( intervention seems to be inform consumer of consequences of paying minimum balance each month and be nice about it )

[Amethyst]

Additionally there's a consultation on authorising Social Landlords to make referrals for tenants in need of furniture / white goods etc on credit - page 140 of https://www.fca.org.uk/publication/c...on/cp18-12.pdf

We want to support and encourage referrals when consumers need credit and
consider that in this area social landlords can play a key role in assisting tenants find
alternatives to high-cost credit when looking to obtain essential household goods.

Some of your tenants moving into unfurnished properties do not possess essential

household goods and furniture such as a bed or fridge. You wish to provide assistance.

For example, you might

–refer a tenant to a credit provider such as a local credit union / CDFI

–refer a tenant to a provider of goods on hire

–refer a tenant to a credit broker

–provide details to the tenant for contacting the provider or broker

–take the lead in calling the lender or set up a meeting on the tenant’s behalf

Any of the above is likely to be credit broking.

Credit brokers that generate no income from their broking activity currently pay £303 per year. If you make money by broking credit this fee will change.

[Amethyst]

BBC Summary here -> https://www.bbc.co.uk/news/business-44307663

CAB response here - > https://www.citizensadvice.org.uk/ab...credit-review/

Which? statement here https://press.which.co.uk/whichstate...credit-review/

Gareth Shaw Which? Money Expert, said:

“Just last week we revealed that unarranged overdraft charges can still be more than seven times more expensive than a payday loan – it’s wrong that the regulator continues to delay taking action, leaving consumers affected by this unfair practice trapped in debt.

“Last summer, the FCA expressed serious concerns about how unarranged overdrafts work, and now almost a year later it is still refusing to take action. As the FCA continues to drag its heels, the Government must urgently intervene to ensure unarranged overdraft charges are brought into line with arranged overdrafts, to finally help all those struggling from these rip-off fees.”

[EXC]

OVERDRAFTS - Consultation ( another one )

When in doubt kick the can a bit further down the road again eh?

[Amethyst]

Yip.... complete pile of poop !

[EXC]

From FCA:

In 2016 firms made an estimated £2.3 billion in revenue from overdrafts; 30 per cent of this was from unarranged overdrafts.

So that's about £700m for unauthorised overdrafts. I did have a list of the revenues for them per year but can't find it but this figure is substantially lower. Why is it that they wait for the bulk of the consumer detriment to pass until they start thinking about doing something?

[Amethyst]

unarranged overdrafts, which generated £1.2 billion of revenue for banks in 2014

so it's about halved since 2014?

Not sure how useful this is as it's split up into maintenance, interest and paid/unpaid item charges.

[Amethyst]

2006 the OFT said the income from ''insufficient funds charges'' alone was £2.6 billion !! http://webarchive.nationalarchives.g...ts/OFT1005.pdf

[EXC]

I spose it's the last 3 columns combined so roughly £1.5b for 2011 to 2013, so yes it's about halved for 2016.

[EXC]

2006 the OFT said the income from ''insufficient funds charges'' alone was £2.6 billion !!

Indeed and it got worse, to about £3.1b from memory. The original OFT report said that banks were making more from U/A overdraft charges than from all their revenues from credit cards & loans combined. Well that was before PPI took over I would think lol.