FCA boss Andrew Bailey fires warning shot across bows of credit industry
The boss of the Financial Conduct Authority (FCA) Andrew Bailey warned this evening that he is willing to intervene in high-cost credit markets, in a shot across the bows of UK lenders.
The FCA acted today to clamp down on credit card fees for borrowers in “persistent debt”, in a move it estimates will wipe as much as £1.3bn off bank profits every year.
The City watchdog, which has a mandate to encourage competition as well as protect consumers, will “seek to intervene to encourage alternatives to high cost credit, particularly those from the ‘mid-cost’ market”, Bailey said in a speech at a black tie dinner in London to industry bigwigs held by the Finance and Leasing Association.
Read more: FCA takes aim at credit card industry with push to wipe out £1.3bn in fees
The FCA gained responsibility for overseeing consumer credit in 2014, but Bailey indicated he still sees the need for big changes to the market which is too skewed towards higher-cost lending, rather than mid-tier provision.
Bailey said: “I am not convinced that currently we have an appropriate system in this country for the sustainable supply of such credit.”
Consumer credit in the UK has risen rapidly over the past decade, with an annual rate of growth above nine per cent – far outstripping GDP growth – since the start of 2016. The rapid build-up has prompted serious concerns, including at the Bank of England, that the debt pile could cause financial stability issues for the UK economy.
Read more: Growth in consumer credit has fallen to its slowest since 2015
However, Bailey said it is “reassuring that credit growth has not been disproportionately driven by those who are most vulnerable”, based on FCA research, but said he is “not sanguine” about the outlook for high-cost credit markets.
He said: “Even though the high cost credit markets are small as a share of total consumer credit, and even though they are not the fastest growing, as a conduct regulator with a consumer responsibility my conclusion from our work is that the main issues and problems are in these markets.”
Firms will have to take more responsibility for checking the affordability of loans for consumers, with careful monitoring from the FCA.
It will report in March on its findings, while also addressing conflicts of interest arising from commission arrangements between lenders and dealers, transparency of information, and the risk of asset valuations falling.
Read more: Bank of England to make banks hold £10bn more to cover consumer credit
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