Shearman & Sterling LLP | FinReg | UK Regulator Launches Call for Input on Review of High-Cost Credit 
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  • UK Regulator Launches Call for Input on Review of High-Cost Credit 

    The Financial Conduct Authority launched a call for input into its review of high-cost credit, including the high-cost of short-term credit (HCSTC) price caps. The FCA took over regulation of consumer credit in April 2014. High-cost credit includes payday loans, home-collected credit, catalogue credit, some rent-to-own, pawn-broking, guarantor and logbook loans. As part of its policy to address the risk of consumer harm from such products, the FCA has introduced a HCSTC cap and new regulation for HCSTC lenders. The FCA has committed to reviewing the HCSTC price cap while also reviewing high-cost products as a whole to determine whether further policy intervention is required and if so, whether a more consistent approach is necessary. The FCA identifies overdrafts as a priority area for consumer protection and regulation. The FCA is seeking responses on issues with regard to the competition and provision of substitute or alternative high-cost credit products to overdrafts. The HCSTC price cap came into force on January 2, 2015. The FCA is seeking to assess whether there is evidence to suggest that it should consider changing the price cap.  

    The call for input also presents analysis of the changes in repeat and multiple borrowing in the HSTC market. The FCA’s previous analysis highlighted that many consumers were frequent users of HSCTC; noting that on average, in 2012/2013, consumers took out six loans a year with 10 loans or more not uncommon. The FCA has analyzed data from 2014/2015 and is seeking advice on the results, noting that repeat borrowing has decreased noticeably. The rate of decline in the number of consumers who are repeat borrowing is greater than the decline in the overall lending volumes in the market. The FCA concludes that there not a clear detriment from repeat and multiple borrowing. Furthermore, the FCA notes that there is no clear relationship of consumers who repeatedly borrow always ending up in arrears. Responses are due by February 15, 2017. 

    View the Call for Input.