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My thoughts on the FCA proposals to reduce high cost credit and unarranged overdraft fees

Thursday, 31st May 2018

Many vulnerable members of society need credit for essential items, this could be for clothing, white goods such as fridges and washing machines but it is just not fair and responsible to charge these people sky high rates of interest, set up fees and warranty insurance. The example the FCA gave of one electric cooker from BrightHouse could cost £1,500 over their credit term when compared to the same item available in the High Street for just £300, sets it out clearly, the vulnerable in my view are being exploited.

With the Financial Conduct Authority (FCA) announcing today their proposals on high cost credit it does appear to be good news that 'right to own' credit will be cheaper in the long term but not until April 2019. I initially though that’s too long a time to wait for consumers already caught up in this form of borrowing but have since read that the FCA is required by legislation to formally consult on rules it proposes to introduce, it cannot just say as of tomorrow these are the new rules, it has to consult with lenders, advice agencies and consumer groups in an open and transparent way and cannot prejudge the result.

The FCA says it will also be looking at ‘radical’ options to ban fixed fees and end the distinctions between how arranged and unarranged overdrafts are priced, as well as tackling harm from repeat use. There is also talk of using digital technology to help customers manage their overdrafts, this would include: sending mobile alerts to warn of potential overdraft charges, adding new online tools to make the cost of overdrafts clearer and making it clear overdrafts are credit or borrowing.

I’m sure all of this will help but it’s pretty obvious the banks will want to leave matters as they are as according to the FCA the banks made a tidy £2.6 billion in overdraft fees, from just for 2016 alone. I personally would like to see unplanned overdraft fees reduced to be more in line with the actual cost to the bank to advance the money instead of a penalty. Even having unplanned overdraft fees being capped would help thousands of consumers.

On the subject of capping the cost of credit, in my opinion all forms of high cost credit namely doorstep lending, now referred to as home credit, catalogue and store card credit. should be capped as is currently in place with payday loans. So if the credit amount is £400 then the total amount owed would never go pass the 100% of what was borrowed and would remain at £800.

We will just have to wait and see what comes out of the consultation, at least it's going in the right direction. We should know more towards the autumn.

You can read more on New proposals for high cost credit and are we to see a cap on rent to own credit?

 

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