FCA publishes high-cost short-term credit report

The Financial Conduct Authority (FCA) has published new data on insights and trends in the high-cost short-term credit (HCSTC). 
 
The data indicates that lending volumes in the market remain well below the levels seen in 2013, but have risen since 2016. Over 5.4 million loans were made in the year to 30 June 2018, with 10 firms accounting for around 85% of new loans. The costs of borrowing are lower than before the price-cap and have been stable since – on average, borrowers are due to repay 1.65 times the amount they borrow.

Borrowers with HCSTC loans are predominantly young, with 37% of payday loan borrowers and 29% of short-term installment borrowers aged between 25 and 34. 37% of HCSTC borrowers are tenants (including council tenants) and 26% are living with parents.

The FCA said “This is the first time that we have published analysis in this market based on data from firms’ regulatory returns. We collect data from firms about HCSTC lending via our Product Sales Data (PSD). We use the data to monitor the HCSTC market and inform our supervision of firms and other regulatory functions. Our analysis also draws on the Financial Lives Survey 2017.”

In April 2014, the FCA assumed responsibility for regulating consumer credit activities. Firms initially received interim permissions to operate while they were applying for FCA authorisation. Firms begin submitting regulatory reporting to us once they are authorised.

Responding to the report Gillian Guy, Chief Executive of Citizens Advice, said “These credit products are aimed at people who have little choice but to borrow to meet the cost of essentials, often leaving them heavily in debt after taking out small loans.”

“Our evidence shows that well-designed caps can prevent costs spiralling out of control, as the FCA has done in the payday loan market.”

“The FCA has announced a cap on rent-to-own which is good news and this needs to include a limit on arrears charges when it’s introduced in April.”

“It must also build upon these protections by capping the cost of doorstep loans.”

Martin Kisby, Head of Compliance, Equiniti Credit Services said “The FCA’s much anticipated review into high-cost short-term credit has been published, and again demonstrates the regulator’s unwavering commitment to best practice and TCF principles.”

“The creation of the FCA meant that lenders could no longer take risks with compliance, and increased awareness of the value of working with specialists to ensure adherence to all guidelines. This was a win-win for the lending industry – improving customer outcomes and reducing the risk of regulatory fines and exposure to defaults for lenders.”

“The HCST credit sector in particular has benefitted from the development of intelligent technologies that increase the accuracy of affordability, suitability and vulnerability assessments, and we have seen the manner with which they communicate with their customers evolve. This combination of technology and increased appreciation of TCF has created a more customer-centric sector with high growth potential, thanks in no small part to the FCA.”

The full report can be viewed here.