High cost consumer credit in the UK. How has the industry changed following the 2015 regulatory regime change?Jump to full report >>
Credit has always aroused strong feelings and debate. At issue are things such as access to credit, reckless lending, problem debtor or the burden of student debt. But no subject has had a higher profile recently than the credit providers in the high cost credit sector: summed up regularly as “legal loan sharks”. No other symbol better epitomises the anger which its critics feel, than the eye wateringly high interest rates it charged.
The sector is now regulated by the Financial Conduct Authority which has introduced a new regulatory regime in 2014, which included limits on the number of loan ‘rollovers’ and caps the amount that loans can cost.
It was to be expected that the regime chnage would have a profound impact on the HCC sector. The FCA were very comfortable with the expectation that the new rules would result in a much smaller industry and that some people (people who previously only just qualified for loans) might no longer have access to credit but that, in economic welfare terms, they would be better off if without it.
Post change the FCA found that:
Number of firms
The industry itself recognises the FCA’s findings but ascribes the changes to more than simply the price cap. It stresses the impact of the limit on ‘rollovers.
The industry feel that its response to the new rules and the move towards longer loans, in a more controlled framework has effectively blurred the lines between HCC and other consumer lending.
Given how differently the industry operates it is something of a surprise that complaints against it have increased sharply. Financial Ombudsman complaints data show a nearly fourfold increase in complaints and a tenfold increase in referrals. This may be more to do with the greater focus on the industry and the more interventionist approach from the Regulator than the fact that the industry has gone from bad to worse. The fact that the upholding rate of complaints has dropped sharply may provide some clue as to the quality of the complaints.
In May 2018 the FCA produced new proposals to change the rules surrounding, especially, the rent to own market, and that of unarranged overdrafts.