High-cost credit is used by over three million consumers in the UK, generally those who are the most vulnerable. In light of this, the FCA is continuing its focus on the protection of consumers and its ongoing assessment of vulnerability with a consultation on the high-cost credit and overdraft sectors. Two consultation papers cover overdrafts (CP18/13), rent-to-own, home-collected credit, catalogue credit and store cards, and include proposals for alternatives to high-cost credit. The full consultations, CP18/12 and CP18/13: Consultations on High-cost Credit and on Overdrafts, can be found here.

It was revealed that overdrafts are increasingly being used by consumers as a ‘safety net’, with younger consumers in particular having little awareness they are incurring debt. The regulator found high fees are often being charged for small borrowing – the majority of arranged overdrafts were for less than £250, while unarranged overdrafts were less than £60. Some firms also lacked adequate communication about the nature of overdrafts and customer account status.

The consultation on overdrafts will lead to a Policy Statement, likely to be published at the end of 2018, with implementation 12 months after. This aims to: improve customer awareness of overdrafts as debt and the resulting fees and charges, introduce remedies for complex charging structures and high fees, as well as removing barriers customers face when looking to switch products.

The regulator will consider access to borrowing and the higher costs incurred by consumers in this sector. It will include focus on the access customers have to technology, such as smartphones, but also their ability to understand and make use of digital alerts. Further work needs to be done on proposals to ban fees in favour of interest charges and capping total charges.

The regulator is also introducing new proposals designed to give consumers more control and protection in relation to rent-to-own, home-collected credit, catalogue credit and store cards, including a potential price cap on rent-to-own goods.

5 things firms can do

1. Focus on whether there is a risk of customer harm within products, pricing policies or customer communications and what you can do to reduce the risk of increasing debt burdens.
2. Know your customer – understand the behaviours and triggers of customers who use your products.
3. Review historic complaints for indications of customer harm that can be addressed.
4. Review the fairness of pricing structures, e.g. is there a difference between arranged and unarranged facilities?
5. Review pre-application messaging – are you providing customers with the information they need to understand if the facility is right for them?

While many of these steps aren’t complicated, it can be difficult to implement a plan of action, particularly if you are a large or complex firm. If you need support in responding to the implications of the issues raised in CP18/12 and CP18/13, get in touch with us today.