The Financial Conduct Authority has warned the cost of living crunch is pushing Brits toward payday loans and buy-now pay-later products today as it launched a fresh financial inclusion drive.
In a speech in Glasgow, FCA chief Nikhil Rathi warned that rising prices had tipped millions of customers into debt this year, while scores of people were still unable to access financial products.
Research by the watchdog found the number of adults in financial difficulty rose from eight per cent in May 2022 to 11 per cent in January 2023, meaning 5.6m people were plunged into financial trouble.
The number of adults finding it a “heavy burden” to pay bills increased from 15 per cent to 21 in the same period.
Rathi warned that the squeeze was making some customers ineligible for mainstream credit products and tipping them into debt via others products.
“The rise in the appeal of Buy Now Pay Later products and payday loans is unsurprising,” he added.
“We’ve capped the cost of payday lending, and following recommendations we made 3 years ago, we stand ready to regulate the buy now pay later sector to make sure consumers can continue to benefit from innovation and maintain access to affordable credit, whilst being treated fairly.”
Rathi added that the regulator had also secured changes to “potentially unfair and unclear terms” in the contracts of buy-now pay-later firms Clearpay, Klarna, Laybuy and Openpay.
City A.M. also revealed last year that bosses had been threatened with jailtime if they did not amend elements of their financial promotion and get sign off from regulated individuals.
Rathi also warned some 1.1 million adults – or 2.1 per cent of the UK – are without a bank account and therefore unable to access normal credit products.
The fresh financial inclusion drive comes despite the FCA rebuffing attempts by lawmakers to include it as a formal ‘objective’ for the regulator.
The influential Treasury Select Committee has urged the FCA to place financial inclusion within its mandate but the move has been slapped down by Rathi who said adding a financial inclusion clause “might risk increasing expectations that the FCA should step in to fix problems that it does not have the power to solve.”
Former FCA chair Charles Randell has similarly called on the FCA to include financial inclusion as one of its objectives, telling a podcast earlier this year the UK “can’t go on” prioritising the competitiveness of the City over the financial safety of consumers.