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FCA to crack down on bank overdraft fees and car loans FCA to crack down on bank overdraft fees and car loans
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The Financial Conduct Authority is to crack down on the high cost of overdrafts and review the booming car loan market in the latest attempt by regulators to tackle mounting consumer debt.The Financial Conduct Authority is to crack down on the high cost of overdrafts and review the booming car loan market in the latest attempt by regulators to tackle mounting consumer debt.
Andrew Bailey, chief executive of the FCA, said charges imposed on customers falling into unauthorised overdrafts would be overhauled. Research by the consumer group Which? has found that the cost of borrowing £100 through an unauthorised overdraft for 28 days from some high street banks is as high as £90. This is up to four times the maximum charges allowed on a payday loan. Andrew Bailey, chief executive of the financial regulator, said charges imposed on customers falling into unauthorised overdrafts would be overhauled. Research by the consumer group Which? has found that the cost of borrowing £100 through an unauthorised overdraft for 28 days from some high street banks is as high as £90. This is up to four times the maximum charges allowed on a payday loan.
In a paper published on Monday, the FCA found that one in six people with debt on credit cards, personal lending and car loans – 2.2m – were in financial distress. They are more likely to be younger, have children, be unemployed and less educated than other consumers. In a paper published on Monday, the FCA that one in six people with debt on credit cards, personal lending and car loans – 2.2 million – were in financial distress. They are more likely to be younger, have children, be unemployed and less educated than other consumers.
Particularly vulnerable are those using “rent to own” loans to buy white goods such as fridges. The FCA has already imposed a cap on the rates that payday lenders can charge and, after reviewing the impact of this restriction, has decided to keep it in place. The cap has “delivered substantial benefits to consumers”, the FCA said, finding that 760,000 borrowers were saving a total of £150m per year. Particularly vulnerable are those using “rent to own” loans to buy white goods such as fridges. The FCA has already imposed a cap on the rates that payday lenders can charge and, after reviewing the impact of this restriction, has decided to keep it in place. The cap has “delivered substantial benefits to consumers”, the regulator said, finding that 760,000 borrowers were saving a total of £150m a year.
Bailey said: “High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers.”Bailey said: “High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers.”
But there was more to be done. “In particular, the nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option,” Bailey said. “We are now working to resolve these issues while preserving the parts of the market that consumers find useful.”But there was more to be done. “In particular, the nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option,” Bailey said. “We are now working to resolve these issues while preserving the parts of the market that consumers find useful.”
The FCA’s action comes after the Bank of England told banks it would conduct health checks on their exposure to car loans, credit cards and personal loans and as its data on Monday showed consumer borrowing continues to rise at a relatively brisk pace. The FCA’s action comes after the Bank of England told banks it would conduct health checks on their exposure to car loans, credit cards and personal loans. On Monday its data showed consumer borrowing has continued to rise at a relatively brisk pace.
Consumer credit rose £1.5bn in June from May, which compared with a £1.8bn increase the previous month, but still marked double-digit growth of 10% on a year ago – and faster than the 2.3% rise in household income. Consumer credit rose £1.5bn in June from May. That was down from a £1.8bn increase the previous month, but still marked double-digit growth of 10% on a year ago – and faster than the 2.3% rise in household income.
Ruth Gregory, UK economist at the consultancy Capital Economics, said: “This will clearly do nothing to allay policymakers’ fears that unsecured credit is growing too quickly. But this at least suggests that households remain confident enough in their financial position to increase borrowing to help smooth consumption, as their real incomes are temporarily squeezed by higher inflation.”Ruth Gregory, UK economist at the consultancy Capital Economics, said: “This will clearly do nothing to allay policymakers’ fears that unsecured credit is growing too quickly. But this at least suggests that households remain confident enough in their financial position to increase borrowing to help smooth consumption, as their real incomes are temporarily squeezed by higher inflation.”
In signalling a clampdown on unauthorised overdraft charges, the FCA is going further than the Competition and Markets Authority which, in its review of the sector last year, called for more transparency.In signalling a clampdown on unauthorised overdraft charges, the FCA is going further than the Competition and Markets Authority which, in its review of the sector last year, called for more transparency.
Gareth Shaw, Which? money expert, said the FCA “must act swiftly to crack down on these exorbitant fees and to restrict unarranged overdraft charges to the same level as for arranged overdrafts, as further delay will only cost consumers”.Gareth Shaw, Which? money expert, said the FCA “must act swiftly to crack down on these exorbitant fees and to restrict unarranged overdraft charges to the same level as for arranged overdrafts, as further delay will only cost consumers”.
It is not clear whether a cap could be imposed in the way that payday lending charges were capped in 2015: interest and fees on all high-cost, short-term credit loans are now capped at 0.8% per day of the amount borrowed. It is not clear whether a cap could be imposed in the way that payday lending charges were capped in 2015: interest and fees on all high-cost, short-term credit loans are now capped at 0.8% a day of the amount borrowed.
The regulator said on Monday that its regulation of the sector meant payday lenders were much less likely to lend to customers who could not afford to repay, and debt charities were seeing far fewer clients with debt problems linked to high-cost, short-term credit. The FCA said on Monday its regulation of the sector meant payday lenders were much less likely to lend to customers who could not afford to repay and that debt charities were seeing far fewer clients with debt problems linked to high-cost, short-term credit.
The Money Advice Trust, which runs the National Debtline, said the intervention in payday lending had worked. “The FCA is right to now turn its attention to other forms of high-cost credit, as well as unauthorised overdrafts, which have become a common feature of the problems that debt charities help people to resolve,” said Jane Tully, director of external affairs at the Money Advice Trust. The Money Advice Trust, which runs the National Debtline, said the intervention in payday lending had worked.
The FCA will also review financing for cars, where lending is growing at 15% a year. “The majority of new car finance is now in the form of personal contract purchase, a form of hire purchase. The key feature of a PCP is that the value of the car at the end of the contract is assessed at the start of the agreement and deferred, resulting in lower monthly repayments,” the FCA said. It is looking at whether firms take the right steps to ensure that they lend responsibly and whether the firms are managing the risk that car prices could fall and whether they are taking account for that in their loan terms. “The FCA is right to now turn its attention to other forms of high-cost credit, as well as unauthorised overdrafts, which have become a common feature of the problems that debt charities help people to resolve,” said Jane Tully, director of external affairs at the charity.
The FCA will also review financing for cars, where lending is growing at 15% a year. “The majority of new car finance is now in the form of personal contract purchase, a form of hire purchase. The key feature of a PCP is that the value of the car at the end of the contract is assessed at the start of the agreement and deferred, resulting in lower monthly repayments,” it said.
The regulator is looking at whether firms take the right steps to ensure that they lend responsibly, are managing the risk that car prices could fall and are taking account for that in their loan terms.
In April, the FCA announced measures to help people in persistent credit card debt, including waiving or cancelling interest and charges if customers cannot afford to curb their liabilities through a repayment planIn April, the FCA announced measures to help people in persistent credit card debt, including waiving or cancelling interest and charges if customers cannot afford to curb their liabilities through a repayment plan
UK Finance, the body which represents the industry, said its members were committed to lending responsibly. “With the current prudential regulatory focus on rising consumer credit, it is understandable that the FCA will also want to look closely at firms’ assessment of how customers can repay if economic circumstances change,” said Eric Leenders, head of personal at UK Finance. UK Finance, the body which represents the industry, said its members were committed to lending responsibly. “With the current prudential regulatory focus on rising consumer credit, it is understandable that the FCA will also want to look closely at firms’ assessment of how customers can repay if economic circumstances change,” said Eric Leenders.