LONDON (Reuters) – Britain’s monetary watchdog is contemplating capping “rent-to-own” costs and essentially reforming how banks cost for unarranged overdrafts to crack down on excessive price credit score, it mentioned on Thursday
The Financial Conduct Authority (FCA) revealed findings from its assessment into excessive price credit score, which incorporates unarranged financial institution overdrafts, home-collected credit score, and a type of rent buy referred to as rent-to-own.
“High cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society,” FCA Chief Executive Andrew Bailey mentioned in an announcement.
“Today we have proposed a significant package of reforms to ensure they are better protected, including the possibility of a cap on rent-to-own lending.”
The bundle of proposals may save shoppers a mixed 200 million kilos a yr, the watchdog mentioned.
The FCA has come underneath stress from Britain’s lawmakers to cap the price of rent-to-own credit score, because it already has finished for curiosity charged on payday loans.
The watchdog mentioned prices for the 400,000 prospects that use rent-to-own, a type of rent buy for acquiring items like fridges and washing machines, may be exceptionally excessive.
In some instances, prospects have paid over 1,500 kilos for an electrical cooker that may be purchased within the outlets for lower than 300 kilos, it mentioned.
The FCA mentioned it could now perform an in depth evaluation of the influence cap may have on the sector and the way it is likely to be structured – and that it was additionally open to different choices.
Any modifications to the sector could be launched by April 2019.
The FCA mentioned it was additionally consulting on banning the sale of prolonged warranties when a rent-to-own contract is signed, which may save shoppers as much as 7.7 million kilos per yr.
In addition, it mentioned it was consulting on obligatory guidelines to make it simpler for patrons to handle their financial institution accounts and keep away from punitive fees for unarranged overdrafts.
The approach banks function and cost for overdrafts wants elementary reform, the FCA mentioned.
Banks earned 2.three billion kilos from overdrafts in 2016, with almost a 3rd from unarranged overdrafts, most of that are paid by simply 1.5 % of shoppers who pay about 450 kilos a yr in charges and fees.
“The FCA is putting forward some immediate proposals today for overdrafts that it believes will save customers up to 140 million pounds a year,” the watchdog mentioned.
“Beyond that, the FCA will consider more radical options to ban fixed fees and end the distinctions around unarranged overdraft prices.”
If acceptable, these choices might be consulted on later this yr as a part of the watchdog’s separate ongoing assessment of retail banking.
The FCA proposed stronger protections for patrons who take out credit score from corporations who acquire repayments within the home, with the goal of saving prospects 34 million kilos a yr.
Catalogue and retailer card corporations will even have to do extra to assist prospects keep away from persistent debt, with modifications proposed by the FCA saving an estimated 27.5 million kilos a yr.
Reporting by Huw Jones; Editing by Mark Potter