Are people using more high-cost credit? Earlier this week the Financial Ombudsman Service published their annual review, which showed an overall 4% rise in banking and credit complaints. Excluding PPI, consumer credit complaints accounted for 24% of all new complaints over the last year and the numbers get even more concerning when we look at the increases in complaints about specific credit products and services. Complaints about payday loans are up 64%, complaints about hiring, leasing and renting are up 73%, and complaints about home credit have increased by a staggering 146%. 1 in every 4 new complaints that wasn’t about PPI involved consumer credit in some way.
To some degree, these numbers are the result of the increase in the number of people using credit and the amounts involved rising – it is clearly a key area for regulatory change in the immediate future. Should financial businesses be doing more to help customers plan for and avoid the risks that come with high-cost credit? What can they do differently?
Yesterday, the FCA published the outcomes of their high-cost credit review, setting out new proposals designed to protect people who use high-cost credit and overdrafts. They’re bringing in some immediate changes concerning transparency around overdrafts, with the end goal described by Andrew Bailey as “rebalancing in favour of the customer”, but they’re also now seeking input for consultation on a much wider-ranging set of changes still to come. While the overdraft issues are grabbing the most media headlines, the same review also has news concerning home-collected credit and catalogue credit and store cards – with plans to strengthen protection for vulnerable users of high-cost credit, raising standards in sales practices and disclosures and introducing new controls on refinancing. The FCA is estimating that these first set of changes alone will save consumers over £34 million per year, and I’m sure we’ll see even more sweeping changes after their consultation period.