The Financial Conduct Authority (FCA) has published the outcome of its review of high cost credit, which includes proposals that could save customers up to £140m a year.
As part of the review, the FCA looked at the rent-to-own sector, overdrafts, home-collected credit and catalogue credit and store cards.
To further address this issue, the FCA aims to promote alternatives to high cost credit, such as credit unions and community development financial institutions (CDFIs).
According to the regulator, in 2016 firms made an estimated £2.3bn in revenue from overdrafts with 30% of this from unarranged overdrafts.
The review explained how in certain cases people ended up paying over £1,500 for essentials like an electric cooker, which could be bought on the high street for less than £300. It is considering introducing a cap on rent-to-own prices.
The FCA also plans to introduce new requirements to raise standards in disclosure and sales practices in the home-collected credit sector. It estimates that changes in this area could save consumers up to over £34m a year.
As part of the proposed regulation, catalogue credit and store card firms will be required to do more to help customers avoid persistent debt. The FCA believes the move could enable consumers to save up to £27.5m a year.
The regulator has prepared guidance to help social landlords, which include housing co-ops, to refer their tenants to alternatives such as credit unions and CDFIs.
The FCA will also be looking at how CDFIs and credit unions access credit reference agency data and the terms on which this is done, as well as the range of products credit unions are allowed to offer consumers by law.
The Association of British Credit Unions (Abcul) welcomed the proposed changes. Head of policy and communications, Matt Bland, said: “We welcome the proposals published today in terms of the extension of protections to different high-cost credit markets beyond payday lending. Credit unions up and down the country are actively mopping up the mess caused by these lenders and seeking to offer a responsible alternative and any moves to clamp down on their worst excesses is beneficial.
“We are also very pleased to see the section on FCA action to support the expansion of alternatives such as credit unions. The measures proposed will make a difference to credit unions doing the hard work of offering a reasonably priced alternative to those with limited options. We’re particularly excited by the on-going discussions which FCA are taking part in around new investment in financial inclusion initiatives and the prospect of FCA supporting a review of credit union legislation which we believe could unlock significant growth in the sector.”
