RSPH has broadly welcomed steps proposed by the Financial Conduct Authority (FCA) in its review into high cost credit. The review looks at five types of credit – overdrafts, rent-to-own, catalogue credit, store cards and doorstep lending – highlighting the specific issues associated with each and proposing solutions, including:
- For overdrafts, the review proposes banning fixed fees and reforming how customers are engaged with by banks about their overdrafts.
- For the rent-to-own sector, the FCA believes there is a case for considering a cap on rent-to-own pricing. They are also consulting on a ban on the sale of extended warranties at the point of sale, which are often of little value to consumers.
- Catalogue credit and store cards create expensive long term debt and are often linked to poorly understood promotional deals. The FCA is proposing new rules to require firms to do more to help customers in long-term persistent debt to repay more quickly and to find and help customers in financial difficulty.
- Doorstep lending is used by a small core of customers who are frequently unduly influenced to keep borrowing. It is proposed that there should be guidelines that prevent firms from visiting customers to offer new loans or refinancing unless it is requested by the customer.
- The FCA is also looking at alternatives to high cost credit to ensure that there are fair and affordable products available to consumers.
Although RSPH broadly welcomes these measures, it believes there has been a missed opportunity to cap the costs on all forms of lending. While payday lenders are currently subject to a cap, and rent-to-own may soon see a cap, consumers will still be left vulnerable to high costs from other forms of lending.
In March 2018, RSPH published its Life on Debt Row report, which highlighted the public health implications of problem debt. It showed that high cost forms of credit have a more negative impact on mental wellbeing than mainstream products, with payday loans, unauthorised overdrafts, doorstep loans and rent-to-own having the most negative effects. It also highlighted the social impact of problem debt, its impact on lifestyle behaviours and on the wider determinants of health.
Shirley Cramer CBE, Chief Executive of RSPH and Chair of the End High Cost Credit Alliance, said: “As our ‘Life on Debt Row’ report demonstrated, high cost credit is having a significant negative effect on the public’s health and wellbeing, particularly that of some of the most vulnerable people in our society. It will continue to exacerbate health inequalities if allowed to continue operating in its current form, and so it is vital that there is meaningful regulation to reduce harms and ensure vulnerable individuals are not targeted and exploited by irresponsible lenders. The FCA’s announcement today is a welcome step forward but there is much more to be done.”
The FCA is consulting on these proposals with responses requested by 31 August 2018.