On 6 December 2017, the APPG on Debt and Personal Finance and the APPG on Alternative Lending sponsored a roundtable on high cost credit and alternatives with the FCA. The event was open to MPs and Peers only.
Christopher Woolard of the FCA, chairing, introduced the discussion. Mr Woolard gave a broad overview of some of the key themes coming out of the regulator’s High Cost Credit review. Mr Woolard said unarranged overdraft charges are a significant concern: charges are high, complex and highly concentrated. He added that tackling these charges will be a ‘huge chunk of what we’ve got to do in this space’.
Mr Woolard said the FCA also has particular concerns about rent to own, home-collected credit and catalogue credit. The regulator will look at multiple and repeat use of different products and more closely at how high cost credit contributes to long-term indebtedness.
Julian Knight MP said the FCA should focus on two key areas, namely rent to own and bank overdraft charges. Overdrafts had flown ‘under the radar’ for too long, yet charges for unarranged overdrafts are often more expensive than a payday loan. High overdraft balances and persistent charges were almost impossible to escape. Mr Knight said the banks should have a responsibility to help people out of a cycle of debt rather than sending them deeper into crisis with extortionate charges.
Yvonne Fovargue MP agreed: more than half of the charges garnered by banks from unauthorised charges are concentrated in around 2 per cent of accounts and stronger action is needed across all high cost credit markets. Ms Fovargue said the FCA’s cap on payday loans has protected borrowers from spiralling debts. High cost borrowers are often walking a financial tightrope and Ms Fovargue said the cap on the total cost of payday loans should be extended across all high cost credit products so that consumers who are financially vulnerable have a clear safety net to rely on.
Turning to affordable credit, Mr Woolard said the FCA is leading a discussion on how to improve access to lower-cost alternative lending. This includes looking at the needs of credit unions and Community Development Finance Institutions.
Baroness Tyler questioned why the UK lagged behind other countries in developing a thriving social lending sector.
Mr Woolard said that for many alternative lenders, the key difficulty has been scaling up. Several reasons have been suggested, most notably difficulties accessing capital at a reasonable cost; and accessing capital that covers first losses.
Baroness Altmann highlighted the development of employer-related schemes for short-term, low-cost credit deals for employees. This includes payroll loans providers such as Salary Finance and Neyber.
Anneliese Dodds MP sounded a note of caution if this implied employers having access to whether an employee was behind on a loan or not. Ms Dodds said more should be done to support credit unions.
Mr Woolard concluded by saying that a particular area the FCA is looking at is on clarifying requirements around credit broking. This might help more social landlords to be confident in advocating lower cost alternatives to their tenants.