On 31 May 2018, the Financial Conduct Authority (“FCA”) published two consultation papers following its review of the high-cost credit market.
In CP18/12 the FCA proposes new rules for rent-to-own credit, home-collected credit, catalogue credit and store cards.
The FCA believes the risk of consumer harm in the rent-to-own market warrants the introduction of a price cap and is engaging in further analysis and consultation in respect of the level of that price cap (albeit making it clear that it will still consider viable alternatives to the introduction of a price cap). The FCA also proposes banning the sale of extended warranties alongside rent-to-own agreements at the point of sale.
In respect of home-collected credit, the FCA is consulting on guidance setting out its view on the interpretation of “canvassing” cash loans off trade premises and a new rule which will require firms to provide consumers with the comparative cost of taking out another loan on top of an existing loan.
In respect of catalogue credit and store cards, the FCA is consulting on new rules which would:
- require catalogue credit and store card firms providing a buy now pay later service to more clearly explain the implications of not paying back the credit within the offer period;
- require firms to remind customers when the offer period is about to expire;
- ensure catalogue credit firms do not give credit limit increases to customers in financial difficulties or increase the interest rate on their account;
- require firms to offer customer in persistent debt to help repay it more quickly.
In CP18/13 the FCA proposes mandatory rules to make it easier for customers to manage their overdrafts; these include:
- mobile alerts informing customers of potential overdraft charges;
- prohibiting the inclusion of overdrafts in the calculation of “available funds”;
- requiring firms to provide online tools to make the cost of overdrafts clearer;
- requiring firms to make it clear that overdrafts are a form of credit.
The FCA believes these initial proposals will save customers up to £140 million per year but has not ruled out proposing and consulting on more radical options later in the year.
The FCA’s press release is available here: high-cost credit review outcome
The consultation paper on rent-to-own, home-collected credit, catalogue credit and store cards is available here: CP18/12
The consultation paper on overdrafts is available here: CP18/13
Comments on the discussion questions regarding rent-to-own pricing must be submitted by 13 July 2018; responses to the consultation generally are required by 31 August 2018.