The speed read

  • FCA interventions deliver £80 million in savings for credit card customers
  • Findings from initial consumer research into cryptoassets published
  • Statement on the MiFID II transparency regime post-Brexit
  • The key risks high-cost lending products pose to consumers
  • Rent-to-own price cap to be introduced
  • UK regulators agree Memoranda of Understanding (MOUs) with EU insurance supervisors
  • Changes to address unclear and excessive motor finance costs
  • FCA announces new Non-Executive Director

FCA interventions deliver £80 million in savings for credit card customers One of the FCA’s focuses within the credit card market has been to reduce the risk of harm arising from unaffordable debt with interventions. It has recently undertaken a review into fees and charges across a number of sectors within the consumer credit market, which raised concerns about how credit card charges were being applied to consumers potentially experiencing financial difficulty. In some cases, firms were charging multiple fees within a single billing cycle and for those with lower credit limit, fees and charges represented a larger proportion of their outstanding debt. Firms in the sample have since reviewed their fee charging structures and as a result, numerous changes have been made, leading to savings of over £80 million. Now the FCA is encouraging all credit card providers to consider whether their processes and policies around fees and charges are resulting in fair consumer outcomes.


Findings from initial consumer research into cryptoassets published The FCA has published findings of its initial research into UK consumers’ attitudes to cryptoassets, including a national survey and qualitative interviews with consumers. The interviews highlighted that many do not fully understand the nature of cryptoassets, which could lead to consumer harm. Despite the lack of understanding, many owners viewed cryptoassets as a way to ‘get rich quick’, often citing recommendations from friends and social media influencers as key reasons for investing. Some buyers did not do any research before making a purchase. 73% of respondents did not know what a cryptocurrency is, or were unable to correctly define it. Despite the low levels of consumer understanding, the national survey suggests the scale of harm may not be as significant as previously thought. Estimates suggest that just 3% of those surveyed had ever bought cryptoassets. Of this sample, around half had spent less than £200, mainly financed through their own disposable income. More than 50% of cryptoasset owners had bought Bitcoin, with 34% opting for Ether.


 Statements of policy on the MiFID transparency regime post-Brexit The FCA has issued statements of policy setting out how it will operate the MiFID transparency regime if the UK leaves the EU without establishing an implementation regime (hard Brexit). The MiFID transparency regime was originally calibrated using trading data from across the EU, including the UK, with ESMA validating this data and calculating various thresholds. In the event of a hard Brexit, the FCA will be solely responsible for operating this regime in the UK and has been given new decision-making powers to facilitate this. This includes a degree of flexibility within the four-year transition period which will allow the FCA to build and adapt the systems necessary to effectively implement the regime.


The key risks high cost lending products pose to consumers The FCA has written to the CEOs of high-cost lenders outlining the key risks the regulator believes these products pose to consumers and markets, as part of its new approach to supervision, implemented in 2018. Across the high-cost lenders portfolio the regulator has identified two key risks:

  • High volumes of relending, which may indicate unsustainable lending patterns
  • Insufficient affordability checks.

There may also be a potential for harm in the guarantor lending space, as the proportion of guarantors making payments has risen significantly, indicating that borrower affordability is  not being properly assessed. Going forward, the FCA will prioritise its supervisory work as follows:

  • Relending: Carrying out diagnostic work to understand the motivation for, and impact of, relending on consumers and firms
  • Affordability: Ongoing work to drive improvements in this area following a Dear CEO letter issued to high-cost short-term credit (HCSTC) firms in October 2018 and the new rules and guidance in effect from 1st November 2018
  • Guarantor lending: establishing whether guarantors are provided with enough information to understand the implications of being a guarantor.


Rent-to-own (RTO) price cap to be introduced Following a consultation in November 2018, the FCA has confirmed it will be introducing a price cap in the RTO sector, alongside other measures to reduce harm arising from high prices. The measures include:

  • A total credit cap of 100% of the price of the product
  • Requiring firms to benchmark base product prices (excluding warranties etc.) against retail prices
  • Measures to prevent firms from increasing the prices of other goods or services included within a RTO agreement (e.g. extended warranties) to recoup any losses arising from the price cap.

These measures will be introduced for all new RTO agreements from 1st April 2019. For those products already available, the rules will apply either when the price is increased or from the 1st July 2019, whichever is soonest. The FCA has also brought the date of its planned review forward by a year, to begin in April 2020.


 UK regulators agree Memoranda of Understanding (MoUs) with EU insurance supervisors   The FCA and PRA have agreed MoUs with the European Insurance and Occupational Pensions Authority (EIOPA) around supervisory cooperation and information sharing in respect of UK and EU/EEA insurance firms. The agreement will come into effect in the event the UK leaves the EU without a withdrawal agreement or implementation period and will ensure that the EU and UK insurance markets remain interconnected and continue to cooperate regardless of the outcome of Brexit.


Changes to address unclear and excessive motor finance costs The FCA has published its final findings of its work into the motor finance sector. Interim findings were published in March 2018 and in the past year, the FCA has focussed its attention on commission arrangements, pre-contract disclosures and affordability assessments. Its key findings include:

  • Commission arrangements may be leading to consumer harm on a potentially large scale
  • Some consumers are paying significantly more for their motor finance because of the way lenders opt to remunerate their brokers
  • Certain commission models, e.g. Difference in Charges (DiC), which link the broker commission to the interest rate charged and give them quite a lot of discretion to set interest rates, create strong incentives to charge higher rates
  • The FCA’s mystery shopping exercise highlighted concerns around commission disclosure and other pre-contractual explanations.

The FCA has followed up on its concerns with the firms involved, however the regulator feels that change is needed across the market. It is currently assessing possible interventions within the market. The resulting measures may include strengthening existing rules, banning certain commission models or limiting broker discretion. The FCA will consult on its proposed measures in the coming months.


FCA announces new Non-Executive Director The FCA has appointed consumer expert Richard Lloyd as Non-Executive Director to its Board, effective from 1st April 2019. He has previously served as Executive Director of Which? and is a founding trustee of the Money and Mental Health Policy Institute. Baroness Sarah Hogg has also been re-appointed as Non-Executive Director for a second three-year term and Amelia Fletcher OBE’s second term has been extended for a further year, to 31st March 2020.