The Financial Conduct Authority (FCA) has shifted its gaze from payday lenders to overdraft providers, as the regulator set out its agenda for consumer credit this morning.
The FCA has said that “fundamental changes” may be necessary in the way that unarranged overdrafts are provided.
It also identified concerns in the rent-to-own, home-collected credit and catalogue credit sectors, and said it would develop tailored solutions to these issues.
“The nature and extent of the problems that we have found with unarranged overdrafts mean that maintaining the status quo is not an option. We are now working to resolve these issues while preserving the parts of the market that consumers find useful,” said FCA chief executive Andrew Bailey.
News of the FCA clampdown yesterday appeared to hit share prices of UK banks, which generate around £1.2bn of revenues from unauthorised overdraft fees.
“We know that £1.2bn of revenue is estimated to be at stake from unauthorised overdraft fees. But Barclays has already got rid of them, Lloyds has announced it’s got rid of them,” said senior Hargreaves Lansdown analyst Laith Khalaf. “But they seem to be caught up in the modest sell-off that we’ve seen. I think that it’s [about] sentiment towards banks and markets sensing some more regulation is hurtling down the road at them.”
One challenger bank boss told City A.M.: “The systemic banks love current accounts for a number of reasons. Any regulatory intervention that threaten these would, I’d suggest, be most unwelcome by the dominant banks.”
John Coley, financial services risk director at PwC, said: “Overall, a number of consumer credit firms have already had to make substantial changes to their processes. However, today’s proposals highlight that further action is required.”
Meanwhile, the FCA's high-cost credit review published this morning found that regulation of payday lending, or high-cost short-term credit, had been effective.
The review stated that 760,000 borrowers were saving £150m per year, firms are less likely to lend to people who cannot afford to repay and debt charities are seeing fewer clients with payday lending-related problems.
On this basis, the authority decided to leave the existing payday loan price cap in place and to review it again in 2020. This means that borrowers must never have to pay more in fees and interest than 100 per cent of what they borrowed.
“High-cost credit products remain a key focus for us because of the risks they pose to potentially vulnerable customers,” said Bailey.
“We are pleased to see clear evidence of improvement in the payday lending market after a period when firms’ treatment of customers and their business models were often unacceptable."
As well as undertaking a review into overdrafts, the FCA will also clarify its rules on creditworthiness and affordability.