Regulator to probe all high-cost lending

The Financial Conduct Authority (FCA) will review all types of "high-cost" lending, including catalogue credit, doorstep lending, hire purchase agreements and pawnbroking in addition to payday loans, it has announced.

Writing exclusively for MoneySavingExpert.com, FCA chief executive Andrew Bailey said there'd been positive changes since its 2015 cap on payday loan charges, with customer arrears for such loans falling by 25%, and the proportion of loans on which late payment fees were charged halving from 16% to 8%.

He said the FCA would now review the effectiveness of the cap, but would also widen its focus to examine the whole high-cost loan sector and consider whether to make changes to the way such products are "designed, bought or sold."

High-cost loan products to be scrutinised include:

• Payday lending

• Doorstep lending

• Credit offered by shopping catalogues

• Rent-to-own (hire purchase) arrangements on household items

• Pawnbroking

• Guarantor loans

• Logbook loans (loans typically secured on a vehicle)

• Car finance agreements

• Credit cards

• Overdrafts

Mr Bailey said: "We started our work on consumer credit lending by taking action on payday loans because we thought this was the area where people were most at risk of being unfairly treated.

"Now we are widening our focus to look at the whole high-cost sector. We want to hear your views and understand your experiences with this type of credit so that we can build a full picture of how these products are used, who uses them and whether they cause harm to the people who use them."

However he warned of the need to avoid a "waterbed effect," in which putting restrictions on all forms of credit runs the risk of encouraging some people to use loan sharks.

Members of the public are invited to submit their comments and experiencies regarding the list of products above, and this feedback will form part of the FCA's review.

To contribute to the review, email your comments to highcostcreditcfi@fca.org.uk by 15 February 2017.

How did payday lending rules change?

In January 2015 the FCA imposed new rules on payday lenders to curb the fees and interest they charge. The cap ensures customers never have to pay back more that twice what they borrowed.

Additionally interest and charges on loans were capped at a maximum of 0.8% of the loan's value per day, and default charges were capped at £15.

As it promised at the time, the FCA is now preparing to review the effectiveness of these changes, as well as broadening its focus to include other loan products.

'We need a fair marketplace to protect the vulnerable'

Martin Lewis, founder of MoneySavingExpert.com says: “The FCA is right to look at extending the reach of the cost cap across the whole of the high cost short term credit market, including unauthorised overdraft charges, which are often more expensive than payday loans. Fair, responsible lending at reasonable rates should be a regulation that applies across the board, not just to one type of loan.The cap on costs has effectively seen a partial shutdown of the payday loans industry that has benefitted many - saving them from the nightmare rates of interest and the hellish life that being chased by a payday company brings. And while much of the market for those loans was built by marketing, and advertising, rather than real demand – since the cap there has been some migration to other forms of painful short-term high-cost lending – most notably guarantor and logbook loans.

We need a fair marketplace that protects the many vulnerable people out there who, in desperation or in times of bad decision-making – whether due to mental health problems, gambling addictions, substance abuse or more – fall prey to lenders at terms that are inappropriate.”