FCA set for further crackdown on high cost credit. Good

Lenders often argue that tougher rules will restrict the supply. Some people have a legitimate need to borrow, but it has become too easy for them to drain the budgets of the poor 

James Moore
Chief Business Commentator
Wednesday 31 January 2018 18:07
Lloyds: One of the banks that has moved on unauthorised overdraft charges
Lloyds: One of the banks that has moved on unauthorised overdraft charges

The exorbitant fees paid by those who go into unauthorised overdraft at the end of the month have long been seen as a problem.

But familiarity with them has brought about a certain level of complacency.

The Financial Conduct Authority appears to be preparing to shake that off.

As part of its ongoing review into high cost credit, it has pointed out that annual revenues from the fees they incur amounted to a staggering 200 per cent of the amount outstanding in 2016. For pre-arranged overdrafts the figure stood at just 25 per cent.

Typically, people borrow less than £50 and only for a few days. But they often pay as much as £5, amounting to 10 per cent of that, daily.

There are those who would argue they should simply call their banks to arrange an "authorised" overdraft. But that's glib. People on tight budgets are often juggling busy work and family lives, and banks are far from model corporate citizens when it comes to customer service.

Press one if you find navigating our phone menu system a hellish nightmare. Press two if you’re preparing to throw your mobile phone at the wall.

There are good grounds for regulatory intervention. Compare that fee of 10 per cent on £50 to the 0.8 per cent a day maximum that payday lenders can charge on a loan of the same amount (so 40p) and the problem is laid bare.

Banks are actually making payday lenders look good. Lobbyists for the latter used to say look at the banks, look at the banks, when the regulator was preparing to crackdown on them. Its decision to cap their appalling charges (and force a change in their sometimes appalling behaviour) was entirely justified, but they might have had a point.

High street banks are generally seen as more respectable than the Wongas of this world. Fees like those I referred do rather show it to be undeserved.

Parts of the industry, Lloyds and Santander for example, have started to move in anticipation of regulatory action that seems likely to come later this year. Financial institutions often do that when they see which way the wind is blowing.

It shouldn’t stop the watchdog from intervening, to prevent backsliding if nothing else.

The party may also be coming to an end for a host of other providers of costly credit - door to door lenders, catalogue operators, the rent-to-own sector - which is a similarly welcome development.

The standard argument against new rules and restrictions on their charges is that it will restrict the availability of credit to people who need it.

But high cost credit drains the limited budgets of people of limited means, and it has, in recent years, arguably become far too easy to obtain.

If making it cheaper makes it harder to find, then so be it.

In a country that sometimes seems hopelessly addicted to borrowing that could be a very welcome development.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

View comments