The UK Financial Conduct Authority to look at issues of persistent debt with overdrafts as well as fundamental reform of unplanned overdrafts

The UK Financial Conduct Authority to look at issues of persistent debt with overdrafts as well as fundamental reform of unplanned overdrafts

The UK Financial Conduct Authority (FCA) has today published its review into the implementation of a price cap on high-cost short-term credit products (payday loans). Frontier advised the FCA on the design of the current cap for high-cost short term credit.

The cap was first introduced in January 2015, setting the maximum payday loan charge for a customer at 100% of the loan value. When introducing the cap, the FCA committed to reviewing the impact after two years. In this review, the FCA found positive benefits of the price cap, and estimates it to bring annual savings of up to £150m for customers of high cost credit. As a result, the cap will be maintained as is with a further review planned for 2020.

As part of its review of high cost credit, the FCA has also looked across the wider consumer credit landscape. One of the main areas the FCA has focused on is overdrafts. In the findings published today, two significant concerns were raised with respect to overdrafts: First, the FCA has highlighted its concerns over the high cost of unplanned overdrafts and whether they have a place as a financial service. Second, the FCA has raised the issue of customers who persistently remain in their overdraft. This concern around “persistent debt” is similar to what the FCA has already looked at in their Credit Card market study.

Paul Cullum, from Frontier’s Financial Service team, said “The FCA has signalled the potential for major changes to overdrafts. The FCA is absolutely right to think about problems with credit usage across products, but therefore needs to make sure any solutions are compatible with what they’ve already done with credit cards, and also account for other ways customers can access credit.”

Frontier regularly advises banks and financial services providers on regulatory strategy.

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