Time for the FCA’s helicopter parenting approach to credit users to end and let them make their own choices
Commentary | 07/03/19
The last few weeks have seen an unprecedented number of press releases from the Financial Conduct Authority regarding the consumer credit industry. The regulator has good intentions like any worthwhile organisation but its current cosseting approach does the consumer a disservice and is consequently narrowing their availability to responsible, regulated credit.
In August 2018, Sky News reported on my concerns that the collapse of Wonga would lead to more lenders entering into administration and this would subsequently result in consumers turning to illegal lenders or placing pressure on friends and family instead.
In just a little over 6 months since the article was published, we have seen the collapse of further lenders in Curo Holdings Plc and Oakam Ltd and the cessation of online lending and sale of stores by The Money Shop, while some lenders in other areas of high cost credit have issued profit warnings or are struggling to deal with the mass number of historical redress complaints being sent to the Financial Ombudsman by dubious claims management companies.
In the meantime the Money Advice Service found £96 billion of debt is hidden from friends and family with many of those in debt saying that they don’t want to burden others with their financial issues. This would suggest many may find it difficult to approach friends and family about borrowing a loan which could lead to some consumers opting to use an illegal lender. A recent Channel 4 documentary saw illegal lenders referring to themselves as “a necessary evil” and describing how “business is booming” . Only last week, a court heard how a loan shark had started ‘in a small way’ in 2012 but by 2018 he was making £1,500 a week with a total of approximately £450,000.
The Sky News article also referred to the CCTA’s views on how the “combination of consumer pressure and political intervention had hobbled an industry that served “the majority of consumers”. Sadly this situation has remained unchanged and the regulatory creep has actually extended across the high cost credit industry as a whole, as the FCA have capped the rent-to-own sector, are assessing the options for intervening in the motor finance market and have warned they will be taking a closer look at the cost of guarantor loans.
This continuous barracking of the industry by the regulator is proving too much of a challenge to smaller lenders whose daily operations are being hampered by compliance costs and tick boxes. Many are reluctantly looking to exit the market which means only the larger companies will survive, therefore limiting consumer choice.
Customers have a right to access responsible credit, and a right to choose what credit they require. The FCA used to say it wasn’t a price regulator but it increasingly feels like policymakers are happy to accept the notion of intervening on market prices, egged on by consumer activists and distracted politicians.
Freedom of choice is slowly being will be taken away from the consumer, and especially the consumers who most need it. Different customers have different credit needs and therefore we must do our utmost to halt this gradual erosion and protect access to all forms of responsible credit.