- Video Report by ITV News Business Editor Joel Hills
The Financial Conduct Authority believes the cost of many forms of “high-cost” credit is too high and that borrowers are being “harmed” as a result.
The FCA has decided it needs to act to protect consumers. Radical change is being proposed but the problem is it’s still some way off. The cavalry is coming, just very slowly.
The evidence the FCA has gathered seems clear enough. Rent-to-own lenders simply cannot justify charging often vulnerable borrowers £1400 for sofas that retails for less than £300.
High Street banks cannot defend charging poorer customers who breach their overdraft limits £2.50 for every £1 borrowed.
They can’t and yet they do and they will continue to for the time being.
The FCA is considering a cap on the interest and fees rent-to-own lenders - of which Bright House is the biggest - can charge. It is considering a similar cap on overdrafts charges but neither will happen before April next year at the earliest.
“Too slow” cry consumer groups. The head of the FCA, Andrew Bailey, is sympathetic. He acknowledges the problem is “serious” and needs tackling but he insists the FCA can only move as fast as the law allows it too.
“These are major interventions” he insists. “We are going to change the the market fundamentally but there is a high bar in public law and we have to get over it. I don’t want to lose this.”
The FCA is not imposing a cap on overdraft lending immediately because it fears the banks will successfully challenge it in court. Ten years ago the banks took the Office for Fair Trading to the Supreme Court for attempting something similar and won.
But while the FCA continues to gather evidence to support its case, we are in the bizarre situation that a regulator has identified widespread examples of bad practice but is unable to act promptly to stamp them out.
The FCA has already intervened to tackle individual, egregious cases of exploitation - last October it roughed up the “rent-to-own” specialist Bright House - but there are systemic problems which need addressing.
The entire “free-in-credit” banking system is unfair and Andrew Bailey says as much. A constituency of poorer customers are subsiding banking for the careful middle-classes by paying through the nose for access to credit.
As it stands banks make more money if customers breach there overdraft limit - that’s a perverse incentive for them to allow people to fall into debt.
The FCA is promising significance reform but the pace of change is glacial.