The FCA is set to clamp down on high-cost credit to protect consumers from unfair practices on the likes of overdrafts, catalogue credit and store cards.
The regulator says that there needs to be “fundamental reform” of how banks operate and charge for overdrafts after a review of expensive borrowing across the market. The FCA estimates that banks made more than £2.3bn from overdrafts in 2016, and that nearly a third of this came from unarranged overdrafts.
The FCA is consulting on a number of rules to help consumers manage their accounts easier. For example, it is weighing up whether to make mobile alerts of overdraft charges mandatory, along with removing any overdrafts from ‘available funds’ calculations and forcing banks to make it clearer that overdrafts are borrowing that has to be paid back.
Together, it hopes its package will save consumers around £140m a year.
The regulator has also targeted the rent-to-own sector, where it has seen examples of consumers paying up to five times more than high-street prices for essential items like cookers after buying them through lease arrangements. It is considering capping rent-to-own prices and will do further assessment of what impact the move would have.
Catalogue credit and store card providers will follow credit card providers in being forced by the FCA to do more to stop consumers getting into persistent debt.
FCA chief executive Andrew Bailey says: “High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society.
“Today we have proposed a significant package of reforms to ensure they are better protected.”
Quilter responsible business director Jane Goodland says more effort needs to be put into financial education to avoid problems with debt.
She says: “There are many reasons why people end up in debt and use expensive credit products. But a contributing factor is undoubtedly a lack of financial capability.
“Too many people struggle to plan ahead and take control of their financial choices by making informed decisions, and bury their head in the sand.
“This can easily become problematic. To counter this, we need to make sure people are empowered to take control of their finances, and feel confident making careful and deliberate choices about money.”