The Financial Conduct Authority (FCA) has announced planned reforms to overdraft charges, rent-to-own operators, and doorstep lending.
However, the financial watchdog faces criticism that it has not gone far enough by failing to take action on unarranged overdraft fees.
Under new regulations set out by the Financial Conduct Authority, ‘rent-to-own’ shops that sell appliances and furniture for small weekly payments but with a high interest rate face a price cap, while there are also measures aimed at tackling exorbitant fees associated with doorstep lending and catalogue shopping.
It is estimated that three million consumers in the UK use high-interest credit, such as a payday loan, doorstep loan or pawnbroking loans, and it is believed that the crackdown could save vulnerable customers more than ?200 million per year.
However, although the FCA has ordered financial institutions to do more to help the 19 million people who regularly use their overdrafts by warning customers via mobile alerts, flagging extra charges and being more transparent about overdraft fees, they have stopped short of limiting the fees for fear of being challenged in court by the banks.
This failure to cap overdraft fees has disappointed many campaigners, who say that up to ?2.3 billion is paid out by consumers that use their overdrafts regularly.
There had been calls for the restrictions on the cost of payday loans, first introduced in 2015, to be used as a template for the rest of the high-cost credit market.
Citizens Advice welcomed the FCA’s willingness to cap high-charging rent-to-own credit merchants as good news for the thousands of people. but was disappointed that it had not extended these proposals to the doorstep lending market.
Chief executive Gillian Guy said: ‘The FCA should reconsider their decision not to consult on a cap in this market. If they fail to act to protect these consumers, the ball will be firmly in the Government?s court.’
She continued: ‘It must show it is genuine in its commitment to making markets work for everyone and put pressure on the regulator or legislate to give people the protection they need.’
FCA chief executive Andrew Bailey promised that a more radical shake-up of overdraft rules was still on the table and could form part of a wider review of retail banking expected later this year.