Andrew Bailey, chief executive of the Financial Conduct Authority, explains why the regulator is widening its focus on lending, nearly two years on from its cap on payday lending charges. Views do not necessarily reflect those of

Around two years ago, before I became CEO, the Financial Conduct Authority imposed a cap on the amount payday lenders are allowed to charge.

This meant that people who borrow from payday lenders never have to pay back more in fees and interest than the amount that they borrowed. Additionally, interest and fees on payday loans cannot exceed 0.8% per day of the amount borrowed on both new loans and loans rolled over and, if borrowers cannot repay their loans on time, fees cannot exceed £15. 

Since then, we have seen a number of changes in this sector - arrears rates have fallen by a quarter, 800,000 fewer people took out a payday loan over an 18-month period and loans charged late payment fees have decreased from 16% to 8%.

At the time, we promised to review the cap two years on. As part of this, we’ve now decided to look more broadly at the whole issue of "high-cost" credit. This includes payday loans, home-collected credit (doorstep lending), catalogue credit, high-cost rent-to-own on household items, pawn-broking, and guarantor and logbook loans.

Other credit products – such as motor finance, credit cards and overdrafts – may be high-cost if not paid back quickly or if lent to people with poor credit history, so we will also be looking at these in the review.

The Financial Conduct Authority took over regulation of consumer credit in April 2014 and our focus in this area is looking at the products and services that can cause the most damage or harm. 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. This piece of work will help us to judge whether we need to make changes to the way these products are designed, bought or sold.

I have spent some time recently in call centres which help people who are experiencing debt problems: Citizens Advice in Manchester, and the National Debtline (which is part of the Money Advice Trust) in Birmingham. I have also visited Advice UK and Toynbee Hall in East London and Young Scot in Edinburgh. When you talk to people who provide debt advice, they say that a number of things have followed from the payday cap. There is definitely a decline in people citing payday lending as a cause of their debt problems.

More of the debt is now directly to councils and utility companies without either being refinanced through payday lending or coming independently out of the financial sector. We need to pull all of this together in our assessment of high-cost credit.

Illegal lending and loan sharks

One of the things we have to be conscious of is the waterbed effect: if you push down on one part of a waterbed, it comes up somewhere else. In this context, that means if you make one type of credit less attractive or reduce the supply by putting caps on the amount that can be charged, people may stop using it and use another form of credit. By putting restrictions on all forms of credit, people who then find that they can’t get credit anymore may be tempted to use illegal lenders and loan sharks to get by. 

I was recently in Birmingham and spent time with the national illegal money lending team. We have to be careful that we do not create a market which encourages illegal lending. Going to illegal money lenders or loan sharks means that you are not protected if you find yourself unable to pay. The national illegal money lending team showed me some very sad examples of individuals who had suffered physical violence, and worse, when they were unable to pay back the money that they had borrowed. 

We think the time is right to pull together a full picture of how people in the UK use high-cost credit so we can assess whether we need to take any additional action to ensure people are protected and not being ripped off. We are keen to hear directly from you so we understand the full picture. You can leave your comments here, or via our web page where you can find further information.

To contribute to the review, email your comments to by 15 February 2017.

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