The Financial Conduct Authority (FCA) has announced new proposals this morning that are designed to protect millions of people who use overdrafts and high-cost credit.
It has announced plans to crackdown on overdrafts, cap rent-to-own agreements and introduce stricter rules for doorstep lenders
The FCA believes that the way banks operate and charge for overdrafts needs fundamental reform.
In 2016 firms made an estimated £2.3 billion in revenue from overdrafts; 30 per cent of this was from unarranged overdrafts. The majority of unarranged overdraft charges are paid by only 1.5% of customers, who pay around £450 per year in fees and charges.
As part of the review the FCA looked closely at the rent-to-own sector. Costs for the 400,000 customers can be high – sometimes exceptionally. The FCA has seen examples where people have paid over £1,500 for essentials like an electric cooker, which could be bought on the high street for less than £300.
Additionally, the FCA intends to strengthen protections for vulnerable users of high-cost credit in stores and at the door, by introducing new requirements to raise standards in disclosure and sales practices.
Catalogue credit and store card firms will be required to do more to help customers avoid persistent debt – in the same way as credit card providers have been made to do by the FCA. These changes are estimated to save consumers up to £27.5 million a year.
Andrew Bailey, Chief Executive of the Financial Conduct Authority said:
‘High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society. Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending.
‘The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.
‘Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place. However, we believe more fundamental change is needed in the way banks charge customers for overdrafts. Given the size of the market our work here will be completed as part of our wider review into retail banking.’
It will now consult on plans to introduce a cap on prices with the aim of introducing changed by April 2019.