In the FCA’s report published today on the outcome of its high-cost credit review, the FCA is quite rightly taking a cautious approach, which is to be welcomed. The focus on overdrafts is welcome too: this is where the bulk of high cost borrowing takes place.

Providing credit to low income consumers will always be an emotive topic. You can’t simply wish-away the costs of servicing this customer group. The FCA gets this and it is taking its time to get the balance right. We are 100% committed to working with them to make sure consumers can get access to the credit they need on the best possible terms.

 On rate caps

We are pleased the FCA has listened on caps – they look great on paper but they are counterproductive in practice. We’re not surprised they have committed to considering one for the rent-to-own sector: they were under intense pressure from the debt campaigns to bring one in. We’ll have to see where the review gets to, but we’re pleased the FCA will be undertaking a proper cost-benefit analysis.

On doorstep lending

We welcome the cautious approach to doorstep lending. When we had this exact same debate 15 years ago, the country’s most respected researchers went away to design an ideal product for low income households and they came up with home credit. It is designed around customers’ needs. Any sensible measures to improve sales practices are welcome, but moves to change a model that customers like and value would be counter productive.

 On the waterbed effect

We are pleased that the FCA is finally acknowledging that there is a ‘waterbed effect’ when you introduce rate caps. FCA Director of Strategy, Christopher Woolard, acknowledged as much on the radio this morning. Previously the FCA insisted there was no waterbed effect when it capped payday lending in 2015. Now it admits it has to ‘encourage more alternatives’ to absorb the spike in demand that caps cause.

The evidence is clear from its own statistics. There was a doubling in borrowing from home credit and rent-to-own businesses in the two years following the introduction of the payday cap. The Treasury estimates there are 300,000 people using illegal lenders, others put the number much higher. The FCA says 3.1 million are borrowing from ‘friends and family’, for many a euphemism for illegal lenders.

The lesson is clear: cap legal sources and borrowers find second choices — these might be regulated, equally they might not.

Greg Stevens

CEO, CCTA

31^st May 2018